BGF Holdco/Sub have been oscillating within ±1σ since early Feb. Last Friday, Sub again made a move. This time it diverted a little further. They are now close to -2σ. Holdco is now at a 46% discount to NAV.
Overall sector outlook is still unpromising. Local street sentiments are still divided. BGF Retail is showing interest in Korea’s third internet bank. This may become a price divergence factor. But this issue is still too early to have real impact.
Shorting is still going pretty heavy on Sub. Sub price divergence shouldn’t last any further from this point. I’d make my trade here.
SamE Common/1P reached a +2σ level. On a 120D horizon, price ratio is currently at the peak. Pref discount is at 21.04%. This of course is a 120D high. We are now right at the AGM phase (Mar 20). Common gets boosted around this time. It seems true that the recent M&A stories also helped Common move over 1P.
I don’t expect to see a continued upwardly divergence in favor of Common from this point. AGM factor should be gone this week. We still have M&A factor. This will likely be offset by shorter-term fundamentals factors such as further falling profits and DRAM design flaws.
Div yield difference on FY19e is 0.87%p. This is even higher than last year which was a record high in 3 years. I expect SamE 1P to make a move over Common from this point.
On Thursday, MYOB Group Ltd (MYO AU) released its Scheme Booklet in which the Independent Expert, Grant Samuel, valued MYOB between A$3.19 and A$3.69 per share. Consequently, Grant Samuel concluded that KKR & Co Inc (KKR US)‘s revised proposal of A$3.40 cash per share is fair and reasonable. However, Manikay Partners continues to voice concerns about the KKR proposal as it believes MYOB is worth well in excess of A$4.00 per share.
With the shares 4 cents below KKR’s revised proposal, we continue to believe shareholders should cash out as Manikay’s valuation is only justifiable if MYOB’s delivers flawless execution.
The revision was a remedial requirement (announced on the 27 Dec) after the Office of the Energy Regulatory Commission (ERC) resolved to approve, in principle, the proposed merger of GSPC and GLOW, provided GLOW sells Glow SPP1 before or at the same time as the merger. The ERC had previously rejected the merger on the 11 October.
Subsequent to the SPP1 sale, the purchase price under the SPA was adjusted to Bt91.9906/share, a ~3% decline from the initial Bt94.892/share price under the original SPA.
My discussions with GLOW indicate the SPA is expected to complete this week – i.e. Engie crosses its 69.11% holding in GLOW to GPSC – and that the 247-3 and 247-4 forms will be submitted by GPSC in “around” 1-2 weeks after the close of the main transaction. The ERC signed off on the SPA last Friday.
Assuming late-May payment, this is currently trading at a gross/annualised spread of 1.6%/8.8%.
An old favorite in the Asian arbitrageur’s investment universe is the Hang Lung stub. The Hang Lung Group acquired Hang Lung Properties (formerly named Amoy Properties) and designated the subsidiary as its property investment arm. After both companies were listed in 1992, the same year that the company entered the mainland with its purchase of the Grand Gateway 66 and Plaza 66 in Shanghai, the pair was open to arbs. The Hang Lung Group now controls over RMB 130 (USD 19.4b) billion of property in Hong Kong and China.
In the wonderful world of Asian holding companies, Hang Lung needs little introduction. However, in this insight I would like to highlight a trade idea. I will detail why I think now is the right time to setup a stub trade and some background information on the company and what assets constitute the stub.
In this insight I will cover:
I. The Trade
II. The Stub Assets
III. My Track Record with Stub Trades
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On March 6th, a day before the Hitachi Ltd (6501 JP) Taiwan elevator business Tender Offer for just over a third of Yungtay Engineering (1507 TT) was expected to close, the closing date was extended to 22 April, notably because the acquiring entity had not yet received Taiwan Ministry of Economy Investment Commission approval for the foreign investment, and the Fair Trading Commission had not yet given the green light, so there was no hope of getting it done by the next day in accordance with Taiwan’s Public Acquisition of Public Company Shares Administrative Law Article 18 Para 2. The proposed purchase price was unchanged at NT$60.
While there have been noises in the market that both Otis and Schindler, which are reported to hold roughly 5-6% each (last year’s shareholder list included UT Park View which United Technologies (UTX US)‘s 10-K showed was a wholly-owned sub) were willing to offer more than Hitachi’s offered NT$60 (and MOPS filings indicate the board approval meeting in end-January referenced a NT$63 potential bid), there was no competitive bid made public and to the authorities by five business days prior to the first bid close (which would have been 26 Feb) as per the same law Article 7 Para 2.
Since then, there have also been other ructions. While terms remain unchanged, it is worthwhile looking into what has been going on. This is still interesting and because of its various inputs, slightly disconcerting to some, and the modalities continue to surprise me.
We write this note to provide P G & E Corp (PCG US) current state of affairs. First and foremost, we believe that the equity value is zero as the company restructures under chapter 11 bankruptcy code. Most companies that enter chapter 11 bankruptcy either face operational or financial headwinds. PG&E problems are compounded by complications of litigation and regulatory risk along with operational and financial risks.
Delta Electronics Thai (DELTA TB) (Delta) released its opinion (Form 250-2) and the opinion of the Independent Financial Advisor (IFA) on the tender offer. Delta Electronics (2308 TT) (DEI) launched the conditional voluntary tender offer for Delta, an electronics contract manufacturer, on 26 February 2019. The tender offer of THB71.00 cash per share values Delta at an EV of THB72 billion ($2.2 billion).
The IFA valued Delta at THB62.33-67.80 per share. Unsurprisingly, both the Delta Board and the IFA concluded that the shareholders should accept the tender offer. While the tender offer’s premium to underlying value is unlikely to set the pulse racing for minority shareholders, we continue to recommend minority shareholders to accept the tender offer.
Something of a slower week on Smartkarma this week (I contributed to that slowness by being away and under the weather when back) with about 120 insights published. A list of the insights to do with Japan and Korea this week are listed below.
Since early November, when Chiyoda incurred substantial losses, scant details regarding the structure of the likely capital raise have emerged, except that the components would include additional loans and equity from industrial partners and most likely, main shareholder Mitsubishi Corp (8058 JP).
LightStream Research‘s conversations with the company suggest a high likelihood a deal would not be in place by the end of Mar, though in a one-on-one meeting they said they were in the final stages of discussions. Lightstream believes a deal is almost certain to be in place by the time of the company’s fiscal year earnings announcement which should be in mid May.
Getting injections of debt capital from banks (likely Mitsubishi Ufj Financial (8306 JP)) and equity capital from Mitsubishi are unlikely to be stumbling blocks. It is plausible that Mitsubishi would be keen to retain its current 33.39% stake in the company, so if the capital is in the form of prefs, Lightstream would expect them to be convertible.
As for the industrial partner, Chiyoda noted that there was significant interest due to their long track record as the leading LNG EPC player in the world, and that it was not so much a matter of being able to secure the financing, as it was a matter of finding a partner where there would be mutual benefits without constraining Chiyoda in terms of its business operations. But that implies the stake would be so large as to imply a controlling or heavily influential stake.
In terms of numbers, Lightstream speculates about ¥30bn in debt from banks with MUFG a likely lead candidate given the keiretsu ties. Perhaps ¥75bn in equity (prefs and common) split between Mitsubishi and an industrial partner. More likely, if Mitsubishi opted for pref shares, the industrial partner would end up with a stake of around 20% in Chiyoda, which could mean a ¥25bn injection, with Mitsubishi buying ¥50bn in prefs.
Shin Etsu announced a share buyback program to buy up to 14mn shares for up to ¥100bn. If it were to have bought all 14mn shares, that would be 3.3% of shares outstanding. Simultaneously, it announced a ToSTNeT-3 buyback of 11,001,100 shares at today’s closing price of ¥9,090/share which if all bought would complete the buyback program.
There was some speculation across the Street there would be a buyback because of slowing earnings expectations and a surfeit of capital, which was itself important because of the company’s lack of recent history of buybacks (the last and only time the company has bought back shares (to date) was a repurchase of 3 million shares for ¥13.6 billion in late October 2008 when things were hairy (and cheap))
It was a decent-sized buyback. That by itself is worthwhile. But it is not enormous. And with ¥1tn in net cash, buying back ¥100bn is not huge enough. It reduces the dividend out a little, and lifts EPS a little. But…
The BIG trade here is to identify the seller as quickly as possible – if it is a corporate seller. If it is Hachijuni Bank, buy Hachijuni Bank. If it is another small listed financial for whom the position is meaningful portion of market cap, Travis Lundy would be inclined to buy that one.
As a follow-up…
the result of the ToSTNeT-3 transaction was that the company bought back 9.84mm shares using 89.5% of the funds. The remaining ¥10.5bn to buy will likely be bought on market. It represents less than one day of volume.
Travis notes that there have been no announcements on TDNET which indicate who the seller might have been. If it had been a life insurer, it would not have made the news because it was portfolio gains, not corporate gains. It is also possible that corporate or bank holders in question would have other sales to offset the gains. We may not know until the yuho.
The previous Friday, the Nikkei announced that because the third party share sale of Pioneer Corp (6773 JP) had been completed, it would be deleted from the Nikkei 225 Average (and the Nikkei 500 Index). Omron will replace Pioneer in the Nikkei 225, with a deemed par value of ¥50 per share. The date for this index deletion and inclusion event was the 15th of March.
The Pioneer exclusion has been known/certain since the deal was approved. The Omron inclusion was less well-flagged. There is a lot of Pioneer stock to come out this week. Because it is so much, and because many people will not want to hold more than 5% of the company, Travis expects there is room for several people to increase their stake for an OK size.
Because of the path of Omron over the past year, Travis expected there would be many foreign holders unwilling to sell their shares at the current price. And they would be ill-prepared to sell large quantities in the market on Friday just because there was a Nikkei 225 inclusion. Travis expected the shares to squeeze. It is not easy to dislodge 25% of the float.
THE HINDSIGHT: As Travis notes in a discussion point appended to his piece, it appears every single buyer post-announcement was down-money by the inclusion, which happened at the lowest price of any traded post-announcement. This indicates substantially more pre-positioning than he thought, and the low volume on the print itself suggests substantially more shorting than might be healthy.
The Daewoo Shipbuilding & Marine Engineering (042660 KS) deal between HHI and KDB is now officially finalised, and it will take the following four-step process: the HHI (to be renamed Korea Shipbuilding & Offshore Engineering, or KSOE) spin-off of the opco (HHI opco); the KDB PIK into HHI; the KSOE rights issue; followed by the DSME rights issue. These details were further elaborated upon in Sanghyun Park‘s prior insight: Hyundai Heavy/DSME Event – Comprehensive Summary.
HHI declined 4% when the deal was finalized while DSME stayed flat. Apparently HHI and Korea Eximbank agreed that the ₩2.3tril CBs wouldn’t be converted into DSME shares and disposed any time soon. Plus, there will be a downward interest adjustment to help ease DSME’s financial burden.
This sparked a speculation that HHI must have pledged Korea Eximbank with some sort of DSME expected valuation. Sanghyun would close the current HHI long/DSME short position. Short-term, he expects DSME will outperform HHI. Longer term, he’d rather stay away from both.
The revision – the divestment on the SPP1 co-generation plant – was a remedial requirement by the ERC regulator. The sale of SPP1 to B Grimm Power (BGRIM TB) for Bt3.3bn was announced on the 22 February and was completed mid-week.
Subsequent to the SPP1 sale, the purchase price under the SPA was adjusted to Bt91.9906/share, a ~3% decline from the initial Bt94.892/share price under the original SPA.
My discussions with GLOW indicate that the 247-4 Tender Offer form may be submitted to the SEC & SEC by GPSC as early as next week, with the Offer open to acceptances shortly after. The ERC signed off on the SPA the previous Friday. Assuming mid-May payment, this is currently trading at a gross/annualised spread of 1.6%/10.8%.
HKICIM announced HNA Finance had entered into a SPA in which Times Holdings, a Blackstone-controlled vehicle, had conditionally agreed to buy 69.54% of HKICIM’s issued shares for HK$3/share in an HK$7bn transaction. Should the SPA complete, Times will make a mandatory unconditional offer – also at $3.00/share (14.5% premium to last close) – for the remaining 30.46% of shares out. This proposal arrives nearly three years after HNA bought a 66% in Tysan Holdings – as HKICIM was previously known – from Blackstone for HK$4.53 per share, triggering an MGO.
After a rapid-fire acquisition spree – at record prices, oddly motivated to “snatch land and pricing power from the city’s real estate cartel” – and similar disposal pace of Kai Tak properties, HNA is presumably recycling these sales proceeds to offset its debt obligations.
This will continue to trade tight to, if not through terms, with an anticipated completion late April. There will be no bump to the Offer. Times does not intend to avail itself to compulsory acquisition and intends to maintain HKICIM’s listing; while both Times and HKICIM will take appropriate steps to maintain a sufficient public float after the close of the Offer.
Iph Ltd (IPH AU) has gate crashed Xenith/Qantm Intellectual Property (QIP AU)‘s marriage of equals, submitting a proposal (by way of a Scheme) for Xenith comprising cash (A$1.28) and IPH shares (0.1056 IPH shares) or A$1.97/share, 23.3% above the implied QANTM all-scrip merger consideration, based on QANTM’s 26 Nov 2016 closing price.
On the same day as the Xenith/QANTM announcement, IPH lobbed a non-binding cash & scrip proposal to acquire QANTM at $1.80/share (including a A$0.05 dividend) by way of a scheme, or a 42% premium to last close. QANTM’s board rejected the proposal due to its highly conditional nature, significant execution risk, and that the offer undervalued the company. So, IPH bought a 19.9% stake in Xenith at $1.85/share (or ~A$33mn) from institutional investors, and further added that is does not support QANTM’s merger and intends to vote against it at the forthcoming scheme meeting on the 3 April.
The key risk to IPH’s proposal is ACCC’s consent – the provisional clearance date for the QANTM/Xenith merger is the 21 March; while IPH/Xenith‘s is the 2 May. IPH, QANTM and Xenith are the only three ASX-listed intellectual property companies, and IPH is the largest (in terms of revenue). However privately owned companies collectively hold a larger market share – and growing – compared to the three listcos. It is not apparent a merger between either of these two listcos would lessen IP service competition in Australia.
With a 19.9% blocking stake, the QANTM/Xenith scheme is toast. 19.9% of institutional investors have already cashed out at $1.85/share. Xenith should engage with IPH.
In the past six months, Hyosung Corp is up 62% while Hyosung TNC is down 12%. Corp’s share price has surged in the past six months on account of excellent dividends, strong financial results and the timing of the increased insider ownerships/completion of tender offers. Douglas Kim believes the market has already factored into Corp’s share price many of these positive factors.
Both TNC and Corp have underperformed the market. However, TNC appears to be a turnaround story driven by a decline in raw material prices, aggressive spandex investment in India, the stabilization of spandex prices in 2H19 and the consolidation of the global spandex industry
Douglas would be long TNC and short Corp on a dollar-for-dollar basis. His base case strategy is to achieve gains of 7-9% on this pair trade. Plugging in Douglas’s numbers results in the discount to NAV at extreme levels. One pushback is that TNC accounts for just 16% of Corps’ NAV. Five other listco holdings total 40% of NAV.
Curtis Lehnert flags this simple holdco structure wherein the bifurcation between the two counters is in excess of 2 STDs. I also touched on this pair last month (StubWorld: Hang Lung’s Implied Stub At Extreme Levels) and this unreasonably wide discount which is made more than unreasonable by the fact that there is very little to distinguish between the two stocks.
Curtis proposes one avenue for narrowing the discount – by HLG divesting its stake in HLP. Maybe. Over a decade ago, HLG’s stake dipped below 50% in HLP, but it still consolidated the accounts.
However the last few years has seen HLG gradually increasing its stake in HLP; and in one instance selling property to HLP (at book), then buying shares in HLP at 0.6x P/B. HLG is cheap, but a catalyst for narrowing the discount remains elusive.
Inputting the latest of Wheelock’s, Wharf’s and WREIC’s FY18’s numbers backs out a discount to NAV of 37.5%, bang in line with its 12-month average. Wheelock is coming up “expensive” vs. Wharf, but Wharf accounts for only 25% and 22% of NAV & GAV respectively.
Wharf’s net profit decreased by 11% in FY18. While the company said cooling measures in China have had minimal impact on demand, it added “the timing of sales launch continued to be dictated by local government approval to sell at full or close to full market price“.
Chairman & MD Stephen Ng said it will sell/reduce its mainland property investments, ruling out any possibility of returning. This suggests the momentum is with non-PRC asset portfolio companies under the Wheelock group, favouring both Wheelock and WREIC.
First Pacific Co (142 HK)exits from the Goodman Fielder JV for US$300mn. First Pac will incur a US$280mn non-cash loss on the sale. Not an ideal return on a five-year investment. Shares closed marginally up suggesting this announcement was largely expected.
MYOB Group Ltd (MYO AU)‘s scheme doc is out. The Scheme meeting is scheduled for 17 April, with an expected implementation date of the 8 May. The independent expert, Grant Samuels, considers the Scheme consideration to be fair & reasonable, with an assessed value range of $3.19-$3.69 vs KKR’s Offer of $3.40.
Trade Me (TME NZ)‘s scheme book is out. The vote will take place on the 3 April. The Independent Adviser concluded that the Scheme consideration of NZ$6.45 is above its valuation range for the shares of NZ$5.93 – NZ$6.39. OIO consent has also been received.
The IFA believesDelta Electronics Thai (DELTA TB)shareholders should accept the Tender Offer of Bt71/share as it is above its fair value range of Bt62.33-Bt67.80/share.
Mastercard’s offer has now lapsed, leaving Visa as the sole bidder for Earthport plc (EPO LN). Visa’s 37 pence offer has been extended for two weeks until the 25 March.
The IFA (UOB) considers the $3.10/share Offer for Kian Joo Can Factory (KJC MK) is “not fair” but “reasonable”. (Best to open the link in Chrome not Edge). UOB considers the Offer price represents a 25 sen or 7.46% discount to the estimated fair value of RM3.35/share. The Offer will be open for acceptances until the 22 March – unless extended.
Australian property developer, Villa World Ltd (VLW AU)announced that it had received an unsolicited proposal from AVID Property Group Australia to acquire all of the company’s shares for A$231/share (a 12% premium to last close) by way of a scheme of arrangement.
CCASS
My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions. These may be indicative of share pledges. Or potential takeovers. Or simply help understand volume swings.
Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.
Closing date of Subsequent Offer for remaining shares
C
Norway
Oslo Børs VPS
Off Mkt
29-Mar
Acceptance Period Ends
C
Switzerland
Panalpina
Off Mkt
5-Apr
EGM
C
US
Red Hat, Inc.
Scheme
March/April
Deal lodged for approval with EU Regulators
C
Source: Company announcements. E = my estimates; C =confirmed
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We write this note to provide P G & E Corp (PCG US) current state of affairs. First and foremost, we believe that the equity value is zero as the company restructures under chapter 11 bankruptcy code. Most companies that enter chapter 11 bankruptcy either face operational or financial headwinds. PG&E problems are compounded by complications of litigation and regulatory risk along with operational and financial risks.
Delta Electronics Thai (DELTA TB) (Delta) released its opinion (Form 250-2) and the opinion of the Independent Financial Advisor (IFA) on the tender offer. Delta Electronics (2308 TT) (DEI) launched the conditional voluntary tender offer for Delta, an electronics contract manufacturer, on 26 February 2019. The tender offer of THB71.00 cash per share values Delta at an EV of THB72 billion ($2.2 billion).
The IFA valued Delta at THB62.33-67.80 per share. Unsurprisingly, both the Delta Board and the IFA concluded that the shareholders should accept the tender offer. While the tender offer’s premium to underlying value is unlikely to set the pulse racing for minority shareholders, we continue to recommend minority shareholders to accept the tender offer.
Something of a slower week on Smartkarma this week (I contributed to that slowness by being away and under the weather when back) with about 120 insights published. A list of the insights to do with Japan and Korea this week are listed below.
Since early November, when Chiyoda incurred substantial losses, scant details regarding the structure of the likely capital raise have emerged, except that the components would include additional loans and equity from industrial partners and most likely, main shareholder Mitsubishi Corp (8058 JP).
LightStream Research‘s conversations with the company suggest a high likelihood a deal would not be in place by the end of Mar, though in a one-on-one meeting they said they were in the final stages of discussions. Lightstream believes a deal is almost certain to be in place by the time of the company’s fiscal year earnings announcement which should be in mid May.
Getting injections of debt capital from banks (likely Mitsubishi Ufj Financial (8306 JP)) and equity capital from Mitsubishi are unlikely to be stumbling blocks. It is plausible that Mitsubishi would be keen to retain its current 33.39% stake in the company, so if the capital is in the form of prefs, Lightstream would expect them to be convertible.
As for the industrial partner, Chiyoda noted that there was significant interest due to their long track record as the leading LNG EPC player in the world, and that it was not so much a matter of being able to secure the financing, as it was a matter of finding a partner where there would be mutual benefits without constraining Chiyoda in terms of its business operations. But that implies the stake would be so large as to imply a controlling or heavily influential stake.
In terms of numbers, Lightstream speculates about ¥30bn in debt from banks with MUFG a likely lead candidate given the keiretsu ties. Perhaps ¥75bn in equity (prefs and common) split between Mitsubishi and an industrial partner. More likely, if Mitsubishi opted for pref shares, the industrial partner would end up with a stake of around 20% in Chiyoda, which could mean a ¥25bn injection, with Mitsubishi buying ¥50bn in prefs.
Shin Etsu announced a share buyback program to buy up to 14mn shares for up to ¥100bn. If it were to have bought all 14mn shares, that would be 3.3% of shares outstanding. Simultaneously, it announced a ToSTNeT-3 buyback of 11,001,100 shares at today’s closing price of ¥9,090/share which if all bought would complete the buyback program.
There was some speculation across the Street there would be a buyback because of slowing earnings expectations and a surfeit of capital, which was itself important because of the company’s lack of recent history of buybacks (the last and only time the company has bought back shares (to date) was a repurchase of 3 million shares for ¥13.6 billion in late October 2008 when things were hairy (and cheap))
It was a decent-sized buyback. That by itself is worthwhile. But it is not enormous. And with ¥1tn in net cash, buying back ¥100bn is not huge enough. It reduces the dividend out a little, and lifts EPS a little. But…
The BIG trade here is to identify the seller as quickly as possible – if it is a corporate seller. If it is Hachijuni Bank, buy Hachijuni Bank. If it is another small listed financial for whom the position is meaningful portion of market cap, Travis Lundy would be inclined to buy that one.
As a follow-up…
the result of the ToSTNeT-3 transaction was that the company bought back 9.84mm shares using 89.5% of the funds. The remaining ¥10.5bn to buy will likely be bought on market. It represents less than one day of volume.
Travis notes that there have been no announcements on TDNET which indicate who the seller might have been. If it had been a life insurer, it would not have made the news because it was portfolio gains, not corporate gains. It is also possible that corporate or bank holders in question would have other sales to offset the gains. We may not know until the yuho.
The previous Friday, the Nikkei announced that because the third party share sale of Pioneer Corp (6773 JP) had been completed, it would be deleted from the Nikkei 225 Average (and the Nikkei 500 Index). Omron will replace Pioneer in the Nikkei 225, with a deemed par value of ¥50 per share. The date for this index deletion and inclusion event was the 15th of March.
The Pioneer exclusion has been known/certain since the deal was approved. The Omron inclusion was less well-flagged. There is a lot of Pioneer stock to come out this week. Because it is so much, and because many people will not want to hold more than 5% of the company, Travis expects there is room for several people to increase their stake for an OK size.
Because of the path of Omron over the past year, Travis expected there would be many foreign holders unwilling to sell their shares at the current price. And they would be ill-prepared to sell large quantities in the market on Friday just because there was a Nikkei 225 inclusion. Travis expected the shares to squeeze. It is not easy to dislodge 25% of the float.
THE HINDSIGHT: As Travis notes in a discussion point appended to his piece, it appears every single buyer post-announcement was down-money by the inclusion, which happened at the lowest price of any traded post-announcement. This indicates substantially more pre-positioning than he thought, and the low volume on the print itself suggests substantially more shorting than might be healthy.
The Daewoo Shipbuilding & Marine Engineering (042660 KS) deal between HHI and KDB is now officially finalised, and it will take the following four-step process: the HHI (to be renamed Korea Shipbuilding & Offshore Engineering, or KSOE) spin-off of the opco (HHI opco); the KDB PIK into HHI; the KSOE rights issue; followed by the DSME rights issue. These details were further elaborated upon in Sanghyun Park‘s prior insight: Hyundai Heavy/DSME Event – Comprehensive Summary.
HHI declined 4% when the deal was finalized while DSME stayed flat. Apparently HHI and Korea Eximbank agreed that the ₩2.3tril CBs wouldn’t be converted into DSME shares and disposed any time soon. Plus, there will be a downward interest adjustment to help ease DSME’s financial burden.
This sparked a speculation that HHI must have pledged Korea Eximbank with some sort of DSME expected valuation. Sanghyun would close the current HHI long/DSME short position. Short-term, he expects DSME will outperform HHI. Longer term, he’d rather stay away from both.
The revision – the divestment on the SPP1 co-generation plant – was a remedial requirement by the ERC regulator. The sale of SPP1 to B Grimm Power (BGRIM TB) for Bt3.3bn was announced on the 22 February and was completed mid-week.
Subsequent to the SPP1 sale, the purchase price under the SPA was adjusted to Bt91.9906/share, a ~3% decline from the initial Bt94.892/share price under the original SPA.
My discussions with GLOW indicate that the 247-4 Tender Offer form may be submitted to the SEC & SEC by GPSC as early as next week, with the Offer open to acceptances shortly after. The ERC signed off on the SPA the previous Friday. Assuming mid-May payment, this is currently trading at a gross/annualised spread of 1.6%/10.8%.
HKICIM announced HNA Finance had entered into a SPA in which Times Holdings, a Blackstone-controlled vehicle, had conditionally agreed to buy 69.54% of HKICIM’s issued shares for HK$3/share in an HK$7bn transaction. Should the SPA complete, Times will make a mandatory unconditional offer – also at $3.00/share (14.5% premium to last close) – for the remaining 30.46% of shares out. This proposal arrives nearly three years after HNA bought a 66% in Tysan Holdings – as HKICIM was previously known – from Blackstone for HK$4.53 per share, triggering an MGO.
After a rapid-fire acquisition spree – at record prices, oddly motivated to “snatch land and pricing power from the city’s real estate cartel” – and similar disposal pace of Kai Tak properties, HNA is presumably recycling these sales proceeds to offset its debt obligations.
This will continue to trade tight to, if not through terms, with an anticipated completion late April. There will be no bump to the Offer. Times does not intend to avail itself to compulsory acquisition and intends to maintain HKICIM’s listing; while both Times and HKICIM will take appropriate steps to maintain a sufficient public float after the close of the Offer.
Iph Ltd (IPH AU) has gate crashed Xenith/Qantm Intellectual Property (QIP AU)‘s marriage of equals, submitting a proposal (by way of a Scheme) for Xenith comprising cash (A$1.28) and IPH shares (0.1056 IPH shares) or A$1.97/share, 23.3% above the implied QANTM all-scrip merger consideration, based on QANTM’s 26 Nov 2016 closing price.
On the same day as the Xenith/QANTM announcement, IPH lobbed a non-binding cash & scrip proposal to acquire QANTM at $1.80/share (including a A$0.05 dividend) by way of a scheme, or a 42% premium to last close. QANTM’s board rejected the proposal due to its highly conditional nature, significant execution risk, and that the offer undervalued the company. So, IPH bought a 19.9% stake in Xenith at $1.85/share (or ~A$33mn) from institutional investors, and further added that is does not support QANTM’s merger and intends to vote against it at the forthcoming scheme meeting on the 3 April.
The key risk to IPH’s proposal is ACCC’s consent – the provisional clearance date for the QANTM/Xenith merger is the 21 March; while IPH/Xenith‘s is the 2 May. IPH, QANTM and Xenith are the only three ASX-listed intellectual property companies, and IPH is the largest (in terms of revenue). However privately owned companies collectively hold a larger market share – and growing – compared to the three listcos. It is not apparent a merger between either of these two listcos would lessen IP service competition in Australia.
With a 19.9% blocking stake, the QANTM/Xenith scheme is toast. 19.9% of institutional investors have already cashed out at $1.85/share. Xenith should engage with IPH.
In the past six months, Hyosung Corp is up 62% while Hyosung TNC is down 12%. Corp’s share price has surged in the past six months on account of excellent dividends, strong financial results and the timing of the increased insider ownerships/completion of tender offers. Douglas Kim believes the market has already factored into Corp’s share price many of these positive factors.
Both TNC and Corp have underperformed the market. However, TNC appears to be a turnaround story driven by a decline in raw material prices, aggressive spandex investment in India, the stabilization of spandex prices in 2H19 and the consolidation of the global spandex industry
Douglas would be long TNC and short Corp on a dollar-for-dollar basis. His base case strategy is to achieve gains of 7-9% on this pair trade. Plugging in Douglas’s numbers results in the discount to NAV at extreme levels. One pushback is that TNC accounts for just 16% of Corps’ NAV. Five other listco holdings total 40% of NAV.
Curtis Lehnert flags this simple holdco structure wherein the bifurcation between the two counters is in excess of 2 STDs. I also touched on this pair last month (StubWorld: Hang Lung’s Implied Stub At Extreme Levels) and this unreasonably wide discount which is made more than unreasonable by the fact that there is very little to distinguish between the two stocks.
Curtis proposes one avenue for narrowing the discount – by HLG divesting its stake in HLP. Maybe. Over a decade ago, HLG’s stake dipped below 50% in HLP, but it still consolidated the accounts.
However the last few years has seen HLG gradually increasing its stake in HLP; and in one instance selling property to HLP (at book), then buying shares in HLP at 0.6x P/B. HLG is cheap, but a catalyst for narrowing the discount remains elusive.
Inputting the latest of Wheelock’s, Wharf’s and WREIC’s FY18’s numbers backs out a discount to NAV of 37.5%, bang in line with its 12-month average. Wheelock is coming up “expensive” vs. Wharf, but Wharf accounts for only 25% and 22% of NAV & GAV respectively.
Wharf’s net profit decreased by 11% in FY18. While the company said cooling measures in China have had minimal impact on demand, it added “the timing of sales launch continued to be dictated by local government approval to sell at full or close to full market price“.
Chairman & MD Stephen Ng said it will sell/reduce its mainland property investments, ruling out any possibility of returning. This suggests the momentum is with non-PRC asset portfolio companies under the Wheelock group, favouring both Wheelock and WREIC.
First Pacific Co (142 HK)exits from the Goodman Fielder JV for US$300mn. First Pac will incur a US$280mn non-cash loss on the sale. Not an ideal return on a five-year investment. Shares closed marginally up suggesting this announcement was largely expected.
MYOB Group Ltd (MYO AU)‘s scheme doc is out. The Scheme meeting is scheduled for 17 April, with an expected implementation date of the 8 May. The independent expert, Grant Samuels, considers the Scheme consideration to be fair & reasonable, with an assessed value range of $3.19-$3.69 vs KKR’s Offer of $3.40.
Trade Me (TME NZ)‘s scheme book is out. The vote will take place on the 3 April. The Independent Adviser concluded that the Scheme consideration of NZ$6.45 is above its valuation range for the shares of NZ$5.93 – NZ$6.39. OIO consent has also been received.
The IFA believesDelta Electronics Thai (DELTA TB)shareholders should accept the Tender Offer of Bt71/share as it is above its fair value range of Bt62.33-Bt67.80/share.
Mastercard’s offer has now lapsed, leaving Visa as the sole bidder for Earthport plc (EPO LN). Visa’s 37 pence offer has been extended for two weeks until the 25 March.
The IFA (UOB) considers the $3.10/share Offer for Kian Joo Can Factory (KJC MK) is “not fair” but “reasonable”. (Best to open the link in Chrome not Edge). UOB considers the Offer price represents a 25 sen or 7.46% discount to the estimated fair value of RM3.35/share. The Offer will be open for acceptances until the 22 March – unless extended.
Australian property developer, Villa World Ltd (VLW AU)announced that it had received an unsolicited proposal from AVID Property Group Australia to acquire all of the company’s shares for A$231/share (a 12% premium to last close) by way of a scheme of arrangement.
CCASS
My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions. These may be indicative of share pledges. Or potential takeovers. Or simply help understand volume swings.
Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.
BGF Holdco/Sub have been oscillating within ±1σ since early Feb. Last Friday, Sub again made a move. This time it diverted a little further. They are now close to -2σ. Holdco is now at a 46% discount to NAV.
Overall sector outlook is still unpromising. Local street sentiments are still divided. BGF Retail is showing interest in Korea’s third internet bank. This may become a price divergence factor. But this issue is still too early to have real impact.
Shorting is still going pretty heavy on Sub. Sub price divergence shouldn’t last any further from this point. I’d make my trade here.
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Delta Electronics Thai (DELTA TB) (Delta) released its opinion (Form 250-2) and the opinion of the Independent Financial Advisor (IFA) on the tender offer. Delta Electronics (2308 TT) (DEI) launched the conditional voluntary tender offer for Delta, an electronics contract manufacturer, on 26 February 2019. The tender offer of THB71.00 cash per share values Delta at an EV of THB72 billion ($2.2 billion).
The IFA valued Delta at THB62.33-67.80 per share. Unsurprisingly, both the Delta Board and the IFA concluded that the shareholders should accept the tender offer. While the tender offer’s premium to underlying value is unlikely to set the pulse racing for minority shareholders, we continue to recommend minority shareholders to accept the tender offer.
Something of a slower week on Smartkarma this week (I contributed to that slowness by being away and under the weather when back) with about 120 insights published. A list of the insights to do with Japan and Korea this week are listed below.
Since early November, when Chiyoda incurred substantial losses, scant details regarding the structure of the likely capital raise have emerged, except that the components would include additional loans and equity from industrial partners and most likely, main shareholder Mitsubishi Corp (8058 JP).
LightStream Research‘s conversations with the company suggest a high likelihood a deal would not be in place by the end of Mar, though in a one-on-one meeting they said they were in the final stages of discussions. Lightstream believes a deal is almost certain to be in place by the time of the company’s fiscal year earnings announcement which should be in mid May.
Getting injections of debt capital from banks (likely Mitsubishi Ufj Financial (8306 JP)) and equity capital from Mitsubishi are unlikely to be stumbling blocks. It is plausible that Mitsubishi would be keen to retain its current 33.39% stake in the company, so if the capital is in the form of prefs, Lightstream would expect them to be convertible.
As for the industrial partner, Chiyoda noted that there was significant interest due to their long track record as the leading LNG EPC player in the world, and that it was not so much a matter of being able to secure the financing, as it was a matter of finding a partner where there would be mutual benefits without constraining Chiyoda in terms of its business operations. But that implies the stake would be so large as to imply a controlling or heavily influential stake.
In terms of numbers, Lightstream speculates about ¥30bn in debt from banks with MUFG a likely lead candidate given the keiretsu ties. Perhaps ¥75bn in equity (prefs and common) split between Mitsubishi and an industrial partner. More likely, if Mitsubishi opted for pref shares, the industrial partner would end up with a stake of around 20% in Chiyoda, which could mean a ¥25bn injection, with Mitsubishi buying ¥50bn in prefs.
Shin Etsu announced a share buyback program to buy up to 14mn shares for up to ¥100bn. If it were to have bought all 14mn shares, that would be 3.3% of shares outstanding. Simultaneously, it announced a ToSTNeT-3 buyback of 11,001,100 shares at today’s closing price of ¥9,090/share which if all bought would complete the buyback program.
There was some speculation across the Street there would be a buyback because of slowing earnings expectations and a surfeit of capital, which was itself important because of the company’s lack of recent history of buybacks (the last and only time the company has bought back shares (to date) was a repurchase of 3 million shares for ¥13.6 billion in late October 2008 when things were hairy (and cheap))
It was a decent-sized buyback. That by itself is worthwhile. But it is not enormous. And with ¥1tn in net cash, buying back ¥100bn is not huge enough. It reduces the dividend out a little, and lifts EPS a little. But…
The BIG trade here is to identify the seller as quickly as possible – if it is a corporate seller. If it is Hachijuni Bank, buy Hachijuni Bank. If it is another small listed financial for whom the position is meaningful portion of market cap, Travis Lundy would be inclined to buy that one.
As a follow-up…
the result of the ToSTNeT-3 transaction was that the company bought back 9.84mm shares using 89.5% of the funds. The remaining ¥10.5bn to buy will likely be bought on market. It represents less than one day of volume.
Travis notes that there have been no announcements on TDNET which indicate who the seller might have been. If it had been a life insurer, it would not have made the news because it was portfolio gains, not corporate gains. It is also possible that corporate or bank holders in question would have other sales to offset the gains. We may not know until the yuho.
The previous Friday, the Nikkei announced that because the third party share sale of Pioneer Corp (6773 JP) had been completed, it would be deleted from the Nikkei 225 Average (and the Nikkei 500 Index). Omron will replace Pioneer in the Nikkei 225, with a deemed par value of ¥50 per share. The date for this index deletion and inclusion event was the 15th of March.
The Pioneer exclusion has been known/certain since the deal was approved. The Omron inclusion was less well-flagged. There is a lot of Pioneer stock to come out this week. Because it is so much, and because many people will not want to hold more than 5% of the company, Travis expects there is room for several people to increase their stake for an OK size.
Because of the path of Omron over the past year, Travis expected there would be many foreign holders unwilling to sell their shares at the current price. And they would be ill-prepared to sell large quantities in the market on Friday just because there was a Nikkei 225 inclusion. Travis expected the shares to squeeze. It is not easy to dislodge 25% of the float.
THE HINDSIGHT: As Travis notes in a discussion point appended to his piece, it appears every single buyer post-announcement was down-money by the inclusion, which happened at the lowest price of any traded post-announcement. This indicates substantially more pre-positioning than he thought, and the low volume on the print itself suggests substantially more shorting than might be healthy.
The Daewoo Shipbuilding & Marine Engineering (042660 KS) deal between HHI and KDB is now officially finalised, and it will take the following four-step process: the HHI (to be renamed Korea Shipbuilding & Offshore Engineering, or KSOE) spin-off of the opco (HHI opco); the KDB PIK into HHI; the KSOE rights issue; followed by the DSME rights issue. These details were further elaborated upon in Sanghyun Park‘s prior insight: Hyundai Heavy/DSME Event – Comprehensive Summary.
HHI declined 4% when the deal was finalized while DSME stayed flat. Apparently HHI and Korea Eximbank agreed that the ₩2.3tril CBs wouldn’t be converted into DSME shares and disposed any time soon. Plus, there will be a downward interest adjustment to help ease DSME’s financial burden.
This sparked a speculation that HHI must have pledged Korea Eximbank with some sort of DSME expected valuation. Sanghyun would close the current HHI long/DSME short position. Short-term, he expects DSME will outperform HHI. Longer term, he’d rather stay away from both.
The revision – the divestment on the SPP1 co-generation plant – was a remedial requirement by the ERC regulator. The sale of SPP1 to B Grimm Power (BGRIM TB) for Bt3.3bn was announced on the 22 February and was completed mid-week.
Subsequent to the SPP1 sale, the purchase price under the SPA was adjusted to Bt91.9906/share, a ~3% decline from the initial Bt94.892/share price under the original SPA.
My discussions with GLOW indicate that the 247-4 Tender Offer form may be submitted to the SEC & SEC by GPSC as early as next week, with the Offer open to acceptances shortly after. The ERC signed off on the SPA the previous Friday. Assuming mid-May payment, this is currently trading at a gross/annualised spread of 1.6%/10.8%.
HKICIM announced HNA Finance had entered into a SPA in which Times Holdings, a Blackstone-controlled vehicle, had conditionally agreed to buy 69.54% of HKICIM’s issued shares for HK$3/share in an HK$7bn transaction. Should the SPA complete, Times will make a mandatory unconditional offer – also at $3.00/share (14.5% premium to last close) – for the remaining 30.46% of shares out. This proposal arrives nearly three years after HNA bought a 66% in Tysan Holdings – as HKICIM was previously known – from Blackstone for HK$4.53 per share, triggering an MGO.
After a rapid-fire acquisition spree – at record prices, oddly motivated to “snatch land and pricing power from the city’s real estate cartel” – and similar disposal pace of Kai Tak properties, HNA is presumably recycling these sales proceeds to offset its debt obligations.
This will continue to trade tight to, if not through terms, with an anticipated completion late April. There will be no bump to the Offer. Times does not intend to avail itself to compulsory acquisition and intends to maintain HKICIM’s listing; while both Times and HKICIM will take appropriate steps to maintain a sufficient public float after the close of the Offer.
Iph Ltd (IPH AU) has gate crashed Xenith/Qantm Intellectual Property (QIP AU)‘s marriage of equals, submitting a proposal (by way of a Scheme) for Xenith comprising cash (A$1.28) and IPH shares (0.1056 IPH shares) or A$1.97/share, 23.3% above the implied QANTM all-scrip merger consideration, based on QANTM’s 26 Nov 2016 closing price.
On the same day as the Xenith/QANTM announcement, IPH lobbed a non-binding cash & scrip proposal to acquire QANTM at $1.80/share (including a A$0.05 dividend) by way of a scheme, or a 42% premium to last close. QANTM’s board rejected the proposal due to its highly conditional nature, significant execution risk, and that the offer undervalued the company. So, IPH bought a 19.9% stake in Xenith at $1.85/share (or ~A$33mn) from institutional investors, and further added that is does not support QANTM’s merger and intends to vote against it at the forthcoming scheme meeting on the 3 April.
The key risk to IPH’s proposal is ACCC’s consent – the provisional clearance date for the QANTM/Xenith merger is the 21 March; while IPH/Xenith‘s is the 2 May. IPH, QANTM and Xenith are the only three ASX-listed intellectual property companies, and IPH is the largest (in terms of revenue). However privately owned companies collectively hold a larger market share – and growing – compared to the three listcos. It is not apparent a merger between either of these two listcos would lessen IP service competition in Australia.
With a 19.9% blocking stake, the QANTM/Xenith scheme is toast. 19.9% of institutional investors have already cashed out at $1.85/share. Xenith should engage with IPH.
In the past six months, Hyosung Corp is up 62% while Hyosung TNC is down 12%. Corp’s share price has surged in the past six months on account of excellent dividends, strong financial results and the timing of the increased insider ownerships/completion of tender offers. Douglas Kim believes the market has already factored into Corp’s share price many of these positive factors.
Both TNC and Corp have underperformed the market. However, TNC appears to be a turnaround story driven by a decline in raw material prices, aggressive spandex investment in India, the stabilization of spandex prices in 2H19 and the consolidation of the global spandex industry
Douglas would be long TNC and short Corp on a dollar-for-dollar basis. His base case strategy is to achieve gains of 7-9% on this pair trade. Plugging in Douglas’s numbers results in the discount to NAV at extreme levels. One pushback is that TNC accounts for just 16% of Corps’ NAV. Five other listco holdings total 40% of NAV.
Curtis Lehnert flags this simple holdco structure wherein the bifurcation between the two counters is in excess of 2 STDs. I also touched on this pair last month (StubWorld: Hang Lung’s Implied Stub At Extreme Levels) and this unreasonably wide discount which is made more than unreasonable by the fact that there is very little to distinguish between the two stocks.
Curtis proposes one avenue for narrowing the discount – by HLG divesting its stake in HLP. Maybe. Over a decade ago, HLG’s stake dipped below 50% in HLP, but it still consolidated the accounts.
However the last few years has seen HLG gradually increasing its stake in HLP; and in one instance selling property to HLP (at book), then buying shares in HLP at 0.6x P/B. HLG is cheap, but a catalyst for narrowing the discount remains elusive.
Inputting the latest of Wheelock’s, Wharf’s and WREIC’s FY18’s numbers backs out a discount to NAV of 37.5%, bang in line with its 12-month average. Wheelock is coming up “expensive” vs. Wharf, but Wharf accounts for only 25% and 22% of NAV & GAV respectively.
Wharf’s net profit decreased by 11% in FY18. While the company said cooling measures in China have had minimal impact on demand, it added “the timing of sales launch continued to be dictated by local government approval to sell at full or close to full market price“.
Chairman & MD Stephen Ng said it will sell/reduce its mainland property investments, ruling out any possibility of returning. This suggests the momentum is with non-PRC asset portfolio companies under the Wheelock group, favouring both Wheelock and WREIC.
First Pacific Co (142 HK)exits from the Goodman Fielder JV for US$300mn. First Pac will incur a US$280mn non-cash loss on the sale. Not an ideal return on a five-year investment. Shares closed marginally up suggesting this announcement was largely expected.
MYOB Group Ltd (MYO AU)‘s scheme doc is out. The Scheme meeting is scheduled for 17 April, with an expected implementation date of the 8 May. The independent expert, Grant Samuels, considers the Scheme consideration to be fair & reasonable, with an assessed value range of $3.19-$3.69 vs KKR’s Offer of $3.40.
Trade Me (TME NZ)‘s scheme book is out. The vote will take place on the 3 April. The Independent Adviser concluded that the Scheme consideration of NZ$6.45 is above its valuation range for the shares of NZ$5.93 – NZ$6.39. OIO consent has also been received.
The IFA believesDelta Electronics Thai (DELTA TB)shareholders should accept the Tender Offer of Bt71/share as it is above its fair value range of Bt62.33-Bt67.80/share.
Mastercard’s offer has now lapsed, leaving Visa as the sole bidder for Earthport plc (EPO LN). Visa’s 37 pence offer has been extended for two weeks until the 25 March.
The IFA (UOB) considers the $3.10/share Offer for Kian Joo Can Factory (KJC MK) is “not fair” but “reasonable”. (Best to open the link in Chrome not Edge). UOB considers the Offer price represents a 25 sen or 7.46% discount to the estimated fair value of RM3.35/share. The Offer will be open for acceptances until the 22 March – unless extended.
Australian property developer, Villa World Ltd (VLW AU)announced that it had received an unsolicited proposal from AVID Property Group Australia to acquire all of the company’s shares for A$231/share (a 12% premium to last close) by way of a scheme of arrangement.
CCASS
My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions. These may be indicative of share pledges. Or potential takeovers. Or simply help understand volume swings.
Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.
BGF Holdco/Sub have been oscillating within ±1σ since early Feb. Last Friday, Sub again made a move. This time it diverted a little further. They are now close to -2σ. Holdco is now at a 46% discount to NAV.
Overall sector outlook is still unpromising. Local street sentiments are still divided. BGF Retail is showing interest in Korea’s third internet bank. This may become a price divergence factor. But this issue is still too early to have real impact.
Shorting is still going pretty heavy on Sub. Sub price divergence shouldn’t last any further from this point. I’d make my trade here.
SamE Common/1P reached a +2σ level. On a 120D horizon, price ratio is currently at the peak. Pref discount is at 21.04%. This of course is a 120D high. We are now right at the AGM phase (Mar 20). Common gets boosted around this time. It seems true that the recent M&A stories also helped Common move over 1P.
I don’t expect to see a continued upwardly divergence in favor of Common from this point. AGM factor should be gone this week. We still have M&A factor. This will likely be offset by shorter-term fundamentals factors such as further falling profits and DRAM design flaws.
Div yield difference on FY19e is 0.87%p. This is even higher than last year which was a record high in 3 years. I expect SamE 1P to make a move over Common from this point.
Get Straight to the Source on Smartkarma
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Something of a slower week on Smartkarma this week (I contributed to that slowness by being away and under the weather when back) with about 120 insights published. A list of the insights to do with Japan and Korea this week are listed below.
Since early November, when Chiyoda incurred substantial losses, scant details regarding the structure of the likely capital raise have emerged, except that the components would include additional loans and equity from industrial partners and most likely, main shareholder Mitsubishi Corp (8058 JP).
LightStream Research‘s conversations with the company suggest a high likelihood a deal would not be in place by the end of Mar, though in a one-on-one meeting they said they were in the final stages of discussions. Lightstream believes a deal is almost certain to be in place by the time of the company’s fiscal year earnings announcement which should be in mid May.
Getting injections of debt capital from banks (likely Mitsubishi Ufj Financial (8306 JP)) and equity capital from Mitsubishi are unlikely to be stumbling blocks. It is plausible that Mitsubishi would be keen to retain its current 33.39% stake in the company, so if the capital is in the form of prefs, Lightstream would expect them to be convertible.
As for the industrial partner, Chiyoda noted that there was significant interest due to their long track record as the leading LNG EPC player in the world, and that it was not so much a matter of being able to secure the financing, as it was a matter of finding a partner where there would be mutual benefits without constraining Chiyoda in terms of its business operations. But that implies the stake would be so large as to imply a controlling or heavily influential stake.
In terms of numbers, Lightstream speculates about ¥30bn in debt from banks with MUFG a likely lead candidate given the keiretsu ties. Perhaps ¥75bn in equity (prefs and common) split between Mitsubishi and an industrial partner. More likely, if Mitsubishi opted for pref shares, the industrial partner would end up with a stake of around 20% in Chiyoda, which could mean a ¥25bn injection, with Mitsubishi buying ¥50bn in prefs.
Shin Etsu announced a share buyback program to buy up to 14mn shares for up to ¥100bn. If it were to have bought all 14mn shares, that would be 3.3% of shares outstanding. Simultaneously, it announced a ToSTNeT-3 buyback of 11,001,100 shares at today’s closing price of ¥9,090/share which if all bought would complete the buyback program.
There was some speculation across the Street there would be a buyback because of slowing earnings expectations and a surfeit of capital, which was itself important because of the company’s lack of recent history of buybacks (the last and only time the company has bought back shares (to date) was a repurchase of 3 million shares for ¥13.6 billion in late October 2008 when things were hairy (and cheap))
It was a decent-sized buyback. That by itself is worthwhile. But it is not enormous. And with ¥1tn in net cash, buying back ¥100bn is not huge enough. It reduces the dividend out a little, and lifts EPS a little. But…
The BIG trade here is to identify the seller as quickly as possible – if it is a corporate seller. If it is Hachijuni Bank, buy Hachijuni Bank. If it is another small listed financial for whom the position is meaningful portion of market cap, Travis Lundy would be inclined to buy that one.
As a follow-up…
the result of the ToSTNeT-3 transaction was that the company bought back 9.84mm shares using 89.5% of the funds. The remaining ¥10.5bn to buy will likely be bought on market. It represents less than one day of volume.
Travis notes that there have been no announcements on TDNET which indicate who the seller might have been. If it had been a life insurer, it would not have made the news because it was portfolio gains, not corporate gains. It is also possible that corporate or bank holders in question would have other sales to offset the gains. We may not know until the yuho.
The previous Friday, the Nikkei announced that because the third party share sale of Pioneer Corp (6773 JP) had been completed, it would be deleted from the Nikkei 225 Average (and the Nikkei 500 Index). Omron will replace Pioneer in the Nikkei 225, with a deemed par value of ¥50 per share. The date for this index deletion and inclusion event was the 15th of March.
The Pioneer exclusion has been known/certain since the deal was approved. The Omron inclusion was less well-flagged. There is a lot of Pioneer stock to come out this week. Because it is so much, and because many people will not want to hold more than 5% of the company, Travis expects there is room for several people to increase their stake for an OK size.
Because of the path of Omron over the past year, Travis expected there would be many foreign holders unwilling to sell their shares at the current price. And they would be ill-prepared to sell large quantities in the market on Friday just because there was a Nikkei 225 inclusion. Travis expected the shares to squeeze. It is not easy to dislodge 25% of the float.
THE HINDSIGHT: As Travis notes in a discussion point appended to his piece, it appears every single buyer post-announcement was down-money by the inclusion, which happened at the lowest price of any traded post-announcement. This indicates substantially more pre-positioning than he thought, and the low volume on the print itself suggests substantially more shorting than might be healthy.
The Daewoo Shipbuilding & Marine Engineering (042660 KS) deal between HHI and KDB is now officially finalised, and it will take the following four-step process: the HHI (to be renamed Korea Shipbuilding & Offshore Engineering, or KSOE) spin-off of the opco (HHI opco); the KDB PIK into HHI; the KSOE rights issue; followed by the DSME rights issue. These details were further elaborated upon in Sanghyun Park‘s prior insight: Hyundai Heavy/DSME Event – Comprehensive Summary.
HHI declined 4% when the deal was finalized while DSME stayed flat. Apparently HHI and Korea Eximbank agreed that the ₩2.3tril CBs wouldn’t be converted into DSME shares and disposed any time soon. Plus, there will be a downward interest adjustment to help ease DSME’s financial burden.
This sparked a speculation that HHI must have pledged Korea Eximbank with some sort of DSME expected valuation. Sanghyun would close the current HHI long/DSME short position. Short-term, he expects DSME will outperform HHI. Longer term, he’d rather stay away from both.
The revision – the divestment on the SPP1 co-generation plant – was a remedial requirement by the ERC regulator. The sale of SPP1 to B Grimm Power (BGRIM TB) for Bt3.3bn was announced on the 22 February and was completed mid-week.
Subsequent to the SPP1 sale, the purchase price under the SPA was adjusted to Bt91.9906/share, a ~3% decline from the initial Bt94.892/share price under the original SPA.
My discussions with GLOW indicate that the 247-4 Tender Offer form may be submitted to the SEC & SEC by GPSC as early as next week, with the Offer open to acceptances shortly after. The ERC signed off on the SPA the previous Friday. Assuming mid-May payment, this is currently trading at a gross/annualised spread of 1.6%/10.8%.
HKICIM announced HNA Finance had entered into a SPA in which Times Holdings, a Blackstone-controlled vehicle, had conditionally agreed to buy 69.54% of HKICIM’s issued shares for HK$3/share in an HK$7bn transaction. Should the SPA complete, Times will make a mandatory unconditional offer – also at $3.00/share (14.5% premium to last close) – for the remaining 30.46% of shares out. This proposal arrives nearly three years after HNA bought a 66% in Tysan Holdings – as HKICIM was previously known – from Blackstone for HK$4.53 per share, triggering an MGO.
After a rapid-fire acquisition spree – at record prices, oddly motivated to “snatch land and pricing power from the city’s real estate cartel” – and similar disposal pace of Kai Tak properties, HNA is presumably recycling these sales proceeds to offset its debt obligations.
This will continue to trade tight to, if not through terms, with an anticipated completion late April. There will be no bump to the Offer. Times does not intend to avail itself to compulsory acquisition and intends to maintain HKICIM’s listing; while both Times and HKICIM will take appropriate steps to maintain a sufficient public float after the close of the Offer.
Iph Ltd (IPH AU) has gate crashed Xenith/Qantm Intellectual Property (QIP AU)‘s marriage of equals, submitting a proposal (by way of a Scheme) for Xenith comprising cash (A$1.28) and IPH shares (0.1056 IPH shares) or A$1.97/share, 23.3% above the implied QANTM all-scrip merger consideration, based on QANTM’s 26 Nov 2016 closing price.
On the same day as the Xenith/QANTM announcement, IPH lobbed a non-binding cash & scrip proposal to acquire QANTM at $1.80/share (including a A$0.05 dividend) by way of a scheme, or a 42% premium to last close. QANTM’s board rejected the proposal due to its highly conditional nature, significant execution risk, and that the offer undervalued the company. So, IPH bought a 19.9% stake in Xenith at $1.85/share (or ~A$33mn) from institutional investors, and further added that is does not support QANTM’s merger and intends to vote against it at the forthcoming scheme meeting on the 3 April.
The key risk to IPH’s proposal is ACCC’s consent – the provisional clearance date for the QANTM/Xenith merger is the 21 March; while IPH/Xenith‘s is the 2 May. IPH, QANTM and Xenith are the only three ASX-listed intellectual property companies, and IPH is the largest (in terms of revenue). However privately owned companies collectively hold a larger market share – and growing – compared to the three listcos. It is not apparent a merger between either of these two listcos would lessen IP service competition in Australia.
With a 19.9% blocking stake, the QANTM/Xenith scheme is toast. 19.9% of institutional investors have already cashed out at $1.85/share. Xenith should engage with IPH.
In the past six months, Hyosung Corp is up 62% while Hyosung TNC is down 12%. Corp’s share price has surged in the past six months on account of excellent dividends, strong financial results and the timing of the increased insider ownerships/completion of tender offers. Douglas Kim believes the market has already factored into Corp’s share price many of these positive factors.
Both TNC and Corp have underperformed the market. However, TNC appears to be a turnaround story driven by a decline in raw material prices, aggressive spandex investment in India, the stabilization of spandex prices in 2H19 and the consolidation of the global spandex industry
Douglas would be long TNC and short Corp on a dollar-for-dollar basis. His base case strategy is to achieve gains of 7-9% on this pair trade. Plugging in Douglas’s numbers results in the discount to NAV at extreme levels. One pushback is that TNC accounts for just 16% of Corps’ NAV. Five other listco holdings total 40% of NAV.
Curtis Lehnert flags this simple holdco structure wherein the bifurcation between the two counters is in excess of 2 STDs. I also touched on this pair last month (StubWorld: Hang Lung’s Implied Stub At Extreme Levels) and this unreasonably wide discount which is made more than unreasonable by the fact that there is very little to distinguish between the two stocks.
Curtis proposes one avenue for narrowing the discount – by HLG divesting its stake in HLP. Maybe. Over a decade ago, HLG’s stake dipped below 50% in HLP, but it still consolidated the accounts.
However the last few years has seen HLG gradually increasing its stake in HLP; and in one instance selling property to HLP (at book), then buying shares in HLP at 0.6x P/B. HLG is cheap, but a catalyst for narrowing the discount remains elusive.
Inputting the latest of Wheelock’s, Wharf’s and WREIC’s FY18’s numbers backs out a discount to NAV of 37.5%, bang in line with its 12-month average. Wheelock is coming up “expensive” vs. Wharf, but Wharf accounts for only 25% and 22% of NAV & GAV respectively.
Wharf’s net profit decreased by 11% in FY18. While the company said cooling measures in China have had minimal impact on demand, it added “the timing of sales launch continued to be dictated by local government approval to sell at full or close to full market price“.
Chairman & MD Stephen Ng said it will sell/reduce its mainland property investments, ruling out any possibility of returning. This suggests the momentum is with non-PRC asset portfolio companies under the Wheelock group, favouring both Wheelock and WREIC.
First Pacific Co (142 HK)exits from the Goodman Fielder JV for US$300mn. First Pac will incur a US$280mn non-cash loss on the sale. Not an ideal return on a five-year investment. Shares closed marginally up suggesting this announcement was largely expected.
MYOB Group Ltd (MYO AU)‘s scheme doc is out. The Scheme meeting is scheduled for 17 April, with an expected implementation date of the 8 May. The independent expert, Grant Samuels, considers the Scheme consideration to be fair & reasonable, with an assessed value range of $3.19-$3.69 vs KKR’s Offer of $3.40.
Trade Me (TME NZ)‘s scheme book is out. The vote will take place on the 3 April. The Independent Adviser concluded that the Scheme consideration of NZ$6.45 is above its valuation range for the shares of NZ$5.93 – NZ$6.39. OIO consent has also been received.
The IFA believesDelta Electronics Thai (DELTA TB)shareholders should accept the Tender Offer of Bt71/share as it is above its fair value range of Bt62.33-Bt67.80/share.
Mastercard’s offer has now lapsed, leaving Visa as the sole bidder for Earthport plc (EPO LN). Visa’s 37 pence offer has been extended for two weeks until the 25 March.
The IFA (UOB) considers the $3.10/share Offer for Kian Joo Can Factory (KJC MK) is “not fair” but “reasonable”. (Best to open the link in Chrome not Edge). UOB considers the Offer price represents a 25 sen or 7.46% discount to the estimated fair value of RM3.35/share. The Offer will be open for acceptances until the 22 March – unless extended.
Australian property developer, Villa World Ltd (VLW AU)announced that it had received an unsolicited proposal from AVID Property Group Australia to acquire all of the company’s shares for A$231/share (a 12% premium to last close) by way of a scheme of arrangement.
CCASS
My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions. These may be indicative of share pledges. Or potential takeovers. Or simply help understand volume swings.
Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.
BGF Holdco/Sub have been oscillating within ±1σ since early Feb. Last Friday, Sub again made a move. This time it diverted a little further. They are now close to -2σ. Holdco is now at a 46% discount to NAV.
Overall sector outlook is still unpromising. Local street sentiments are still divided. BGF Retail is showing interest in Korea’s third internet bank. This may become a price divergence factor. But this issue is still too early to have real impact.
Shorting is still going pretty heavy on Sub. Sub price divergence shouldn’t last any further from this point. I’d make my trade here.
SamE Common/1P reached a +2σ level. On a 120D horizon, price ratio is currently at the peak. Pref discount is at 21.04%. This of course is a 120D high. We are now right at the AGM phase (Mar 20). Common gets boosted around this time. It seems true that the recent M&A stories also helped Common move over 1P.
I don’t expect to see a continued upwardly divergence in favor of Common from this point. AGM factor should be gone this week. We still have M&A factor. This will likely be offset by shorter-term fundamentals factors such as further falling profits and DRAM design flaws.
Div yield difference on FY19e is 0.87%p. This is even higher than last year which was a record high in 3 years. I expect SamE 1P to make a move over Common from this point.
On Thursday, MYOB Group Ltd (MYO AU) released its Scheme Booklet in which the Independent Expert, Grant Samuel, valued MYOB between A$3.19 and A$3.69 per share. Consequently, Grant Samuel concluded that KKR & Co Inc (KKR US)‘s revised proposal of A$3.40 cash per share is fair and reasonable. However, Manikay Partners continues to voice concerns about the KKR proposal as it believes MYOB is worth well in excess of A$4.00 per share.
With the shares 4 cents below KKR’s revised proposal, we continue to believe shareholders should cash out as Manikay’s valuation is only justifiable if MYOB’s delivers flawless execution.
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Since early November, when Chiyoda incurred substantial losses, scant details regarding the structure of the likely capital raise have emerged, except that the components would include additional loans and equity from industrial partners and most likely, main shareholder Mitsubishi Corp (8058 JP).
LightStream Research‘s conversations with the company suggest a high likelihood a deal would not be in place by the end of Mar, though in a one-on-one meeting they said they were in the final stages of discussions. Lightstream believes a deal is almost certain to be in place by the time of the company’s fiscal year earnings announcement which should be in mid May.
Getting injections of debt capital from banks (likely Mitsubishi Ufj Financial (8306 JP)) and equity capital from Mitsubishi are unlikely to be stumbling blocks. It is plausible that Mitsubishi would be keen to retain its current 33.39% stake in the company, so if the capital is in the form of prefs, Lightstream would expect them to be convertible.
As for the industrial partner, Chiyoda noted that there was significant interest due to their long track record as the leading LNG EPC player in the world, and that it was not so much a matter of being able to secure the financing, as it was a matter of finding a partner where there would be mutual benefits without constraining Chiyoda in terms of its business operations. But that implies the stake would be so large as to imply a controlling or heavily influential stake.
In terms of numbers, Lightstream speculates about ¥30bn in debt from banks with MUFG a likely lead candidate given the keiretsu ties. Perhaps ¥75bn in equity (prefs and common) split between Mitsubishi and an industrial partner. More likely, if Mitsubishi opted for pref shares, the industrial partner would end up with a stake of around 20% in Chiyoda, which could mean a ¥25bn injection, with Mitsubishi buying ¥50bn in prefs.
Shin Etsu announced a share buyback program to buy up to 14mn shares for up to ¥100bn. If it were to have bought all 14mn shares, that would be 3.3% of shares outstanding. Simultaneously, it announced a ToSTNeT-3 buyback of 11,001,100 shares at today’s closing price of ¥9,090/share which if all bought would complete the buyback program.
There was some speculation across the Street there would be a buyback because of slowing earnings expectations and a surfeit of capital, which was itself important because of the company’s lack of recent history of buybacks (the last and only time the company has bought back shares (to date) was a repurchase of 3 million shares for ¥13.6 billion in late October 2008 when things were hairy (and cheap))
It was a decent-sized buyback. That by itself is worthwhile. But it is not enormous. And with ¥1tn in net cash, buying back ¥100bn is not huge enough. It reduces the dividend out a little, and lifts EPS a little. But…
The BIG trade here is to identify the seller as quickly as possible – if it is a corporate seller. If it is Hachijuni Bank, buy Hachijuni Bank. If it is another small listed financial for whom the position is meaningful portion of market cap, Travis Lundy would be inclined to buy that one.
As a follow-up…
the result of the ToSTNeT-3 transaction was that the company bought back 9.84mm shares using 89.5% of the funds. The remaining ¥10.5bn to buy will likely be bought on market. It represents less than one day of volume.
Travis notes that there have been no announcements on TDNET which indicate who the seller might have been. If it had been a life insurer, it would not have made the news because it was portfolio gains, not corporate gains. It is also possible that corporate or bank holders in question would have other sales to offset the gains. We may not know until the yuho.
The previous Friday, the Nikkei announced that because the third party share sale of Pioneer Corp (6773 JP) had been completed, it would be deleted from the Nikkei 225 Average (and the Nikkei 500 Index). Omron will replace Pioneer in the Nikkei 225, with a deemed par value of ¥50 per share. The date for this index deletion and inclusion event was the 15th of March.
The Pioneer exclusion has been known/certain since the deal was approved. The Omron inclusion was less well-flagged. There is a lot of Pioneer stock to come out this week. Because it is so much, and because many people will not want to hold more than 5% of the company, Travis expects there is room for several people to increase their stake for an OK size.
Because of the path of Omron over the past year, Travis expected there would be many foreign holders unwilling to sell their shares at the current price. And they would be ill-prepared to sell large quantities in the market on Friday just because there was a Nikkei 225 inclusion. Travis expected the shares to squeeze. It is not easy to dislodge 25% of the float.
THE HINDSIGHT: As Travis notes in a discussion point appended to his piece, it appears every single buyer post-announcement was down-money by the inclusion, which happened at the lowest price of any traded post-announcement. This indicates substantially more pre-positioning than he thought, and the low volume on the print itself suggests substantially more shorting than might be healthy.
The Daewoo Shipbuilding & Marine Engineering (042660 KS) deal between HHI and KDB is now officially finalised, and it will take the following four-step process: the HHI (to be renamed Korea Shipbuilding & Offshore Engineering, or KSOE) spin-off of the opco (HHI opco); the KDB PIK into HHI; the KSOE rights issue; followed by the DSME rights issue. These details were further elaborated upon in Sanghyun Park‘s prior insight: Hyundai Heavy/DSME Event – Comprehensive Summary.
HHI declined 4% when the deal was finalized while DSME stayed flat. Apparently HHI and Korea Eximbank agreed that the ₩2.3tril CBs wouldn’t be converted into DSME shares and disposed any time soon. Plus, there will be a downward interest adjustment to help ease DSME’s financial burden.
This sparked a speculation that HHI must have pledged Korea Eximbank with some sort of DSME expected valuation. Sanghyun would close the current HHI long/DSME short position. Short-term, he expects DSME will outperform HHI. Longer term, he’d rather stay away from both.
The revision – the divestment on the SPP1 co-generation plant – was a remedial requirement by the ERC regulator. The sale of SPP1 to B Grimm Power (BGRIM TB) for Bt3.3bn was announced on the 22 February and was completed mid-week.
Subsequent to the SPP1 sale, the purchase price under the SPA was adjusted to Bt91.9906/share, a ~3% decline from the initial Bt94.892/share price under the original SPA.
My discussions with GLOW indicate that the 247-4 Tender Offer form may be submitted to the SEC & SEC by GPSC as early as next week, with the Offer open to acceptances shortly after. The ERC signed off on the SPA the previous Friday. Assuming mid-May payment, this is currently trading at a gross/annualised spread of 1.6%/10.8%.
HKICIM announced HNA Finance had entered into a SPA in which Times Holdings, a Blackstone-controlled vehicle, had conditionally agreed to buy 69.54% of HKICIM’s issued shares for HK$3/share in an HK$7bn transaction. Should the SPA complete, Times will make a mandatory unconditional offer – also at $3.00/share (14.5% premium to last close) – for the remaining 30.46% of shares out. This proposal arrives nearly three years after HNA bought a 66% in Tysan Holdings – as HKICIM was previously known – from Blackstone for HK$4.53 per share, triggering an MGO.
After a rapid-fire acquisition spree – at record prices, oddly motivated to “snatch land and pricing power from the city’s real estate cartel” – and similar disposal pace of Kai Tak properties, HNA is presumably recycling these sales proceeds to offset its debt obligations.
This will continue to trade tight to, if not through terms, with an anticipated completion late April. There will be no bump to the Offer. Times does not intend to avail itself to compulsory acquisition and intends to maintain HKICIM’s listing; while both Times and HKICIM will take appropriate steps to maintain a sufficient public float after the close of the Offer.
Iph Ltd (IPH AU) has gate crashed Xenith/Qantm Intellectual Property (QIP AU)‘s marriage of equals, submitting a proposal (by way of a Scheme) for Xenith comprising cash (A$1.28) and IPH shares (0.1056 IPH shares) or A$1.97/share, 23.3% above the implied QANTM all-scrip merger consideration, based on QANTM’s 26 Nov 2016 closing price.
On the same day as the Xenith/QANTM announcement, IPH lobbed a non-binding cash & scrip proposal to acquire QANTM at $1.80/share (including a A$0.05 dividend) by way of a scheme, or a 42% premium to last close. QANTM’s board rejected the proposal due to its highly conditional nature, significant execution risk, and that the offer undervalued the company. So, IPH bought a 19.9% stake in Xenith at $1.85/share (or ~A$33mn) from institutional investors, and further added that is does not support QANTM’s merger and intends to vote against it at the forthcoming scheme meeting on the 3 April.
The key risk to IPH’s proposal is ACCC’s consent – the provisional clearance date for the QANTM/Xenith merger is the 21 March; while IPH/Xenith‘s is the 2 May. IPH, QANTM and Xenith are the only three ASX-listed intellectual property companies, and IPH is the largest (in terms of revenue). However privately owned companies collectively hold a larger market share – and growing – compared to the three listcos. It is not apparent a merger between either of these two listcos would lessen IP service competition in Australia.
With a 19.9% blocking stake, the QANTM/Xenith scheme is toast. 19.9% of institutional investors have already cashed out at $1.85/share. Xenith should engage with IPH.
In the past six months, Hyosung Corp is up 62% while Hyosung TNC is down 12%. Corp’s share price has surged in the past six months on account of excellent dividends, strong financial results and the timing of the increased insider ownerships/completion of tender offers. Douglas Kim believes the market has already factored into Corp’s share price many of these positive factors.
Both TNC and Corp have underperformed the market. However, TNC appears to be a turnaround story driven by a decline in raw material prices, aggressive spandex investment in India, the stabilization of spandex prices in 2H19 and the consolidation of the global spandex industry
Douglas would be long TNC and short Corp on a dollar-for-dollar basis. His base case strategy is to achieve gains of 7-9% on this pair trade. Plugging in Douglas’s numbers results in the discount to NAV at extreme levels. One pushback is that TNC accounts for just 16% of Corps’ NAV. Five other listco holdings total 40% of NAV.
Curtis Lehnert flags this simple holdco structure wherein the bifurcation between the two counters is in excess of 2 STDs. I also touched on this pair last month (StubWorld: Hang Lung’s Implied Stub At Extreme Levels) and this unreasonably wide discount which is made more than unreasonable by the fact that there is very little to distinguish between the two stocks.
Curtis proposes one avenue for narrowing the discount – by HLG divesting its stake in HLP. Maybe. Over a decade ago, HLG’s stake dipped below 50% in HLP, but it still consolidated the accounts.
However the last few years has seen HLG gradually increasing its stake in HLP; and in one instance selling property to HLP (at book), then buying shares in HLP at 0.6x P/B. HLG is cheap, but a catalyst for narrowing the discount remains elusive.
Inputting the latest of Wheelock’s, Wharf’s and WREIC’s FY18’s numbers backs out a discount to NAV of 37.5%, bang in line with its 12-month average. Wheelock is coming up “expensive” vs. Wharf, but Wharf accounts for only 25% and 22% of NAV & GAV respectively.
Wharf’s net profit decreased by 11% in FY18. While the company said cooling measures in China have had minimal impact on demand, it added “the timing of sales launch continued to be dictated by local government approval to sell at full or close to full market price“.
Chairman & MD Stephen Ng said it will sell/reduce its mainland property investments, ruling out any possibility of returning. This suggests the momentum is with non-PRC asset portfolio companies under the Wheelock group, favouring both Wheelock and WREIC.
First Pacific Co (142 HK)exits from the Goodman Fielder JV for US$300mn. First Pac will incur a US$280mn non-cash loss on the sale. Not an ideal return on a five-year investment. Shares closed marginally up suggesting this announcement was largely expected.
MYOB Group Ltd (MYO AU)‘s scheme doc is out. The Scheme meeting is scheduled for 17 April, with an expected implementation date of the 8 May. The independent expert, Grant Samuels, considers the Scheme consideration to be fair & reasonable, with an assessed value range of $3.19-$3.69 vs KKR’s Offer of $3.40.
Trade Me (TME NZ)‘s scheme book is out. The vote will take place on the 3 April. The Independent Adviser concluded that the Scheme consideration of NZ$6.45 is above its valuation range for the shares of NZ$5.93 – NZ$6.39. OIO consent has also been received.
The IFA believesDelta Electronics Thai (DELTA TB)shareholders should accept the Tender Offer of Bt71/share as it is above its fair value range of Bt62.33-Bt67.80/share.
Mastercard’s offer has now lapsed, leaving Visa as the sole bidder for Earthport plc (EPO LN). Visa’s 37 pence offer has been extended for two weeks until the 25 March.
The IFA (UOB) considers the $3.10/share Offer for Kian Joo Can Factory (KJC MK) is “not fair” but “reasonable”. (Best to open the link in Chrome not Edge). UOB considers the Offer price represents a 25 sen or 7.46% discount to the estimated fair value of RM3.35/share. The Offer will be open for acceptances until the 22 March – unless extended.
Australian property developer, Villa World Ltd (VLW AU)announced that it had received an unsolicited proposal from AVID Property Group Australia to acquire all of the company’s shares for A$231/share (a 12% premium to last close) by way of a scheme of arrangement.
CCASS
My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions. These may be indicative of share pledges. Or potential takeovers. Or simply help understand volume swings.
Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.
BGF Holdco/Sub have been oscillating within ±1σ since early Feb. Last Friday, Sub again made a move. This time it diverted a little further. They are now close to -2σ. Holdco is now at a 46% discount to NAV.
Overall sector outlook is still unpromising. Local street sentiments are still divided. BGF Retail is showing interest in Korea’s third internet bank. This may become a price divergence factor. But this issue is still too early to have real impact.
Shorting is still going pretty heavy on Sub. Sub price divergence shouldn’t last any further from this point. I’d make my trade here.
SamE Common/1P reached a +2σ level. On a 120D horizon, price ratio is currently at the peak. Pref discount is at 21.04%. This of course is a 120D high. We are now right at the AGM phase (Mar 20). Common gets boosted around this time. It seems true that the recent M&A stories also helped Common move over 1P.
I don’t expect to see a continued upwardly divergence in favor of Common from this point. AGM factor should be gone this week. We still have M&A factor. This will likely be offset by shorter-term fundamentals factors such as further falling profits and DRAM design flaws.
Div yield difference on FY19e is 0.87%p. This is even higher than last year which was a record high in 3 years. I expect SamE 1P to make a move over Common from this point.
On Thursday, MYOB Group Ltd (MYO AU) released its Scheme Booklet in which the Independent Expert, Grant Samuel, valued MYOB between A$3.19 and A$3.69 per share. Consequently, Grant Samuel concluded that KKR & Co Inc (KKR US)‘s revised proposal of A$3.40 cash per share is fair and reasonable. However, Manikay Partners continues to voice concerns about the KKR proposal as it believes MYOB is worth well in excess of A$4.00 per share.
With the shares 4 cents below KKR’s revised proposal, we continue to believe shareholders should cash out as Manikay’s valuation is only justifiable if MYOB’s delivers flawless execution.
The revision was a remedial requirement (announced on the 27 Dec) after the Office of the Energy Regulatory Commission (ERC) resolved to approve, in principle, the proposed merger of GSPC and GLOW, provided GLOW sells Glow SPP1 before or at the same time as the merger. The ERC had previously rejected the merger on the 11 October.
Subsequent to the SPP1 sale, the purchase price under the SPA was adjusted to Bt91.9906/share, a ~3% decline from the initial Bt94.892/share price under the original SPA.
My discussions with GLOW indicate the SPA is expected to complete this week – i.e. Engie crosses its 69.11% holding in GLOW to GPSC – and that the 247-3 and 247-4 forms will be submitted by GPSC in “around” 1-2 weeks after the close of the main transaction. The ERC signed off on the SPA last Friday.
Assuming late-May payment, this is currently trading at a gross/annualised spread of 1.6%/8.8%.
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SamE Common/1P reached a +2σ level. On a 120D horizon, price ratio is currently at the peak. Pref discount is at 21.04%. This of course is a 120D high. We are now right at the AGM phase (Mar 20). Common gets boosted around this time. It seems true that the recent M&A stories also helped Common move over 1P.
I don’t expect to see a continued upwardly divergence in favor of Common from this point. AGM factor should be gone this week. We still have M&A factor. This will likely be offset by shorter-term fundamentals factors such as further falling profits and DRAM design flaws.
Div yield difference on FY19e is 0.87%p. This is even higher than last year which was a record high in 3 years. I expect SamE 1P to make a move over Common from this point.
On Thursday, MYOB Group Ltd (MYO AU) released its Scheme Booklet in which the Independent Expert, Grant Samuel, valued MYOB between A$3.19 and A$3.69 per share. Consequently, Grant Samuel concluded that KKR & Co Inc (KKR US)‘s revised proposal of A$3.40 cash per share is fair and reasonable. However, Manikay Partners continues to voice concerns about the KKR proposal as it believes MYOB is worth well in excess of A$4.00 per share.
With the shares 4 cents below KKR’s revised proposal, we continue to believe shareholders should cash out as Manikay’s valuation is only justifiable if MYOB’s delivers flawless execution.
The revision was a remedial requirement (announced on the 27 Dec) after the Office of the Energy Regulatory Commission (ERC) resolved to approve, in principle, the proposed merger of GSPC and GLOW, provided GLOW sells Glow SPP1 before or at the same time as the merger. The ERC had previously rejected the merger on the 11 October.
Subsequent to the SPP1 sale, the purchase price under the SPA was adjusted to Bt91.9906/share, a ~3% decline from the initial Bt94.892/share price under the original SPA.
My discussions with GLOW indicate the SPA is expected to complete this week – i.e. Engie crosses its 69.11% holding in GLOW to GPSC – and that the 247-3 and 247-4 forms will be submitted by GPSC in “around” 1-2 weeks after the close of the main transaction. The ERC signed off on the SPA last Friday.
Assuming late-May payment, this is currently trading at a gross/annualised spread of 1.6%/8.8%.
An old favorite in the Asian arbitrageur’s investment universe is the Hang Lung stub. The Hang Lung Group acquired Hang Lung Properties (formerly named Amoy Properties) and designated the subsidiary as its property investment arm. After both companies were listed in 1992, the same year that the company entered the mainland with its purchase of the Grand Gateway 66 and Plaza 66 in Shanghai, the pair was open to arbs. The Hang Lung Group now controls over RMB 130 (USD 19.4b) billion of property in Hong Kong and China.
In the wonderful world of Asian holding companies, Hang Lung needs little introduction. However, in this insight I would like to highlight a trade idea. I will detail why I think now is the right time to setup a stub trade and some background information on the company and what assets constitute the stub.
On Wednesday, Sigma Healthcare (SIG AU) rejected an indicative takeover offer from rival Australian Pharma Industries (API AU). Shareholders were disappointed with the news, with Sigma’s shares closing 12.3% lower at A$0.54 per share. API shares fared better and fell 3.6% to A$1.35 each.
We believe Sigma’s board were left with the tough choice of accepting a lowball offer or improving the existing business and riding out the inevitable share price fall. By rejecting the API bid, the Sigma board made the difficult but right choice, in our view. While further downside risk to the share price is limited, we caution that shareholders require patience as the road to share price recovery will be long.
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On Thursday, MYOB Group Ltd (MYO AU) released its Scheme Booklet in which the Independent Expert, Grant Samuel, valued MYOB between A$3.19 and A$3.69 per share. Consequently, Grant Samuel concluded that KKR & Co Inc (KKR US)‘s revised proposal of A$3.40 cash per share is fair and reasonable. However, Manikay Partners continues to voice concerns about the KKR proposal as it believes MYOB is worth well in excess of A$4.00 per share.
With the shares 4 cents below KKR’s revised proposal, we continue to believe shareholders should cash out as Manikay’s valuation is only justifiable if MYOB’s delivers flawless execution.
The revision was a remedial requirement (announced on the 27 Dec) after the Office of the Energy Regulatory Commission (ERC) resolved to approve, in principle, the proposed merger of GSPC and GLOW, provided GLOW sells Glow SPP1 before or at the same time as the merger. The ERC had previously rejected the merger on the 11 October.
Subsequent to the SPP1 sale, the purchase price under the SPA was adjusted to Bt91.9906/share, a ~3% decline from the initial Bt94.892/share price under the original SPA.
My discussions with GLOW indicate the SPA is expected to complete this week – i.e. Engie crosses its 69.11% holding in GLOW to GPSC – and that the 247-3 and 247-4 forms will be submitted by GPSC in “around” 1-2 weeks after the close of the main transaction. The ERC signed off on the SPA last Friday.
Assuming late-May payment, this is currently trading at a gross/annualised spread of 1.6%/8.8%.
An old favorite in the Asian arbitrageur’s investment universe is the Hang Lung stub. The Hang Lung Group acquired Hang Lung Properties (formerly named Amoy Properties) and designated the subsidiary as its property investment arm. After both companies were listed in 1992, the same year that the company entered the mainland with its purchase of the Grand Gateway 66 and Plaza 66 in Shanghai, the pair was open to arbs. The Hang Lung Group now controls over RMB 130 (USD 19.4b) billion of property in Hong Kong and China.
In the wonderful world of Asian holding companies, Hang Lung needs little introduction. However, in this insight I would like to highlight a trade idea. I will detail why I think now is the right time to setup a stub trade and some background information on the company and what assets constitute the stub.
On Wednesday, Sigma Healthcare (SIG AU) rejected an indicative takeover offer from rival Australian Pharma Industries (API AU). Shareholders were disappointed with the news, with Sigma’s shares closing 12.3% lower at A$0.54 per share. API shares fared better and fell 3.6% to A$1.35 each.
We believe Sigma’s board were left with the tough choice of accepting a lowball offer or improving the existing business and riding out the inevitable share price fall. By rejecting the API bid, the Sigma board made the difficult but right choice, in our view. While further downside risk to the share price is limited, we caution that shareholders require patience as the road to share price recovery will be long.
Wheelock & (20 HK) is coming up “expensive”, but it’s Wharf Holdings (4 HK) which is under-performing after PRC property sales targets are lowered amid Beijing’s cooling measures.
Preceding my comments on Wheelock and other stubs are the weekly setup/unwind tables for Asia-Pacific Holdcos.
These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.
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The revision was a remedial requirement (announced on the 27 Dec) after the Office of the Energy Regulatory Commission (ERC) resolved to approve, in principle, the proposed merger of GSPC and GLOW, provided GLOW sells Glow SPP1 before or at the same time as the merger. The ERC had previously rejected the merger on the 11 October.
Subsequent to the SPP1 sale, the purchase price under the SPA was adjusted to Bt91.9906/share, a ~3% decline from the initial Bt94.892/share price under the original SPA.
My discussions with GLOW indicate the SPA is expected to complete this week – i.e. Engie crosses its 69.11% holding in GLOW to GPSC – and that the 247-3 and 247-4 forms will be submitted by GPSC in “around” 1-2 weeks after the close of the main transaction. The ERC signed off on the SPA last Friday.
Assuming late-May payment, this is currently trading at a gross/annualised spread of 1.6%/8.8%.
An old favorite in the Asian arbitrageur’s investment universe is the Hang Lung stub. The Hang Lung Group acquired Hang Lung Properties (formerly named Amoy Properties) and designated the subsidiary as its property investment arm. After both companies were listed in 1992, the same year that the company entered the mainland with its purchase of the Grand Gateway 66 and Plaza 66 in Shanghai, the pair was open to arbs. The Hang Lung Group now controls over RMB 130 (USD 19.4b) billion of property in Hong Kong and China.
In the wonderful world of Asian holding companies, Hang Lung needs little introduction. However, in this insight I would like to highlight a trade idea. I will detail why I think now is the right time to setup a stub trade and some background information on the company and what assets constitute the stub.
On Wednesday, Sigma Healthcare (SIG AU) rejected an indicative takeover offer from rival Australian Pharma Industries (API AU). Shareholders were disappointed with the news, with Sigma’s shares closing 12.3% lower at A$0.54 per share. API shares fared better and fell 3.6% to A$1.35 each.
We believe Sigma’s board were left with the tough choice of accepting a lowball offer or improving the existing business and riding out the inevitable share price fall. By rejecting the API bid, the Sigma board made the difficult but right choice, in our view. While further downside risk to the share price is limited, we caution that shareholders require patience as the road to share price recovery will be long.
Wheelock & (20 HK) is coming up “expensive”, but it’s Wharf Holdings (4 HK) which is under-performing after PRC property sales targets are lowered amid Beijing’s cooling measures.
Preceding my comments on Wheelock and other stubs are the weekly setup/unwind tables for Asia-Pacific Holdcos.
These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.
On 12 March 2019 after the close, Shin Etsu Chemical (4063 JP)announced a share buyback program to buy up to 14 million shares for up to ¥100 billion. If it bought all 14 million shares, that would be 3.3% of shares outstanding. Simultaneously, it announced a ToSTNeT-3 buyback of 11,001,100 shares at today’s closing price of ¥9,090/share which if all bought would complete the buyback program.
As I write, the shares are up 4-6% in thin trading in the ADRs.
There was some speculation across the Street there would be a buyback because of slowing earnings expectations and a surfeit of capital, which was itself important because of the company’s lack of recent history of buybacks (the last and only time the company has bought back shares (to date) was a repurchase of 3 million shares for ¥13.6 billion in late October 2008 when things were hairy (and cheap)).
The shares are down over the past year, but the price in the past few days is not dramatically at the low end of the range of the past six months or so.
There may be some information in the context and structure of this buyback which tells you something different than people’s first reaction.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
An old favorite in the Asian arbitrageur’s investment universe is the Hang Lung stub. The Hang Lung Group acquired Hang Lung Properties (formerly named Amoy Properties) and designated the subsidiary as its property investment arm. After both companies were listed in 1992, the same year that the company entered the mainland with its purchase of the Grand Gateway 66 and Plaza 66 in Shanghai, the pair was open to arbs. The Hang Lung Group now controls over RMB 130 (USD 19.4b) billion of property in Hong Kong and China.
In the wonderful world of Asian holding companies, Hang Lung needs little introduction. However, in this insight I would like to highlight a trade idea. I will detail why I think now is the right time to setup a stub trade and some background information on the company and what assets constitute the stub.
On Wednesday, Sigma Healthcare (SIG AU) rejected an indicative takeover offer from rival Australian Pharma Industries (API AU). Shareholders were disappointed with the news, with Sigma’s shares closing 12.3% lower at A$0.54 per share. API shares fared better and fell 3.6% to A$1.35 each.
We believe Sigma’s board were left with the tough choice of accepting a lowball offer or improving the existing business and riding out the inevitable share price fall. By rejecting the API bid, the Sigma board made the difficult but right choice, in our view. While further downside risk to the share price is limited, we caution that shareholders require patience as the road to share price recovery will be long.
Wheelock & (20 HK) is coming up “expensive”, but it’s Wharf Holdings (4 HK) which is under-performing after PRC property sales targets are lowered amid Beijing’s cooling measures.
Preceding my comments on Wheelock and other stubs are the weekly setup/unwind tables for Asia-Pacific Holdcos.
These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.
On 12 March 2019 after the close, Shin Etsu Chemical (4063 JP)announced a share buyback program to buy up to 14 million shares for up to ¥100 billion. If it bought all 14 million shares, that would be 3.3% of shares outstanding. Simultaneously, it announced a ToSTNeT-3 buyback of 11,001,100 shares at today’s closing price of ¥9,090/share which if all bought would complete the buyback program.
As I write, the shares are up 4-6% in thin trading in the ADRs.
There was some speculation across the Street there would be a buyback because of slowing earnings expectations and a surfeit of capital, which was itself important because of the company’s lack of recent history of buybacks (the last and only time the company has bought back shares (to date) was a repurchase of 3 million shares for ¥13.6 billion in late October 2008 when things were hairy (and cheap)).
The shares are down over the past year, but the price in the past few days is not dramatically at the low end of the range of the past six months or so.
There may be some information in the context and structure of this buyback which tells you something different than people’s first reaction.
The key point of interest for investors regarding Chiyoda Corp (6366 JP) continues to be details surrounding its upcoming capital raise. The company has, since early November when it incurred these losses, offered scant details regarding the structure of the capital raise, except to note that the components would include additional loans and equity from industrial partners and most likely, main shareholder Mitsubishi Corp (8058 JP).
We visited the company to gather as much information as possible on the potential structure of the capital increase and to update the order outlook and reasons for further cost overruns.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.