Event-Driven

There are 3 changes for the CES China Semiconductor Chips Index that will be implemented at the close on 8 December.
Hygon Information Technology C (688041 CH) will be added to a global index in a week and then there will be multiple index inflows at the close on 8 December.
After underperforming from May to September, the adds have gained ground on the deletes over the last two months and there could be further outperformance over the next two weeks.

T&K TOKA (4636 JP): Imminent TOB Launch? Imminent Bump Needed?

In August, T&K Toka Co Ltd (4636 JP) announced a TOB by Bain with a clearance hurdle of selling a 3.51% stake in Hangzhou Toka Ink (SH:688571) before launch.
Friday, the company announced that they put up a 3.6% stake for auction, with the sale to be executed that day. That likely triggers an early launch of the TOB.
The TOB Price is offensively cheap at 0.63x “official” book, and 0.53x book adjusted for equity affiliate price. The shares have traded through terms since launch. This should get bumped.

Index Rebalance & ETF Flow Recap: HSI, HSCEI, HSTECH, HSCI, Div+, Top50, ASX, FXI, Xiaomi, Tata Tech

The capping for the Hang Seng family of indices will use closing prices from 28 November while implementation will take place at the close on 1 December.
The changes for the next S&P/ASX 200 (AS51 INDEX) rebalance will be announced after the close of trading on 1 December.
It was another week of inflows for the iShares Emerging Markets (EMXC US) to take units outstanding to a new high.

STAR50 Index Rebalance: Big Impact Expected; Inclusion Up 40% in One Month

As expected, the index committee has used a 6-month minimum listing history and that results in one change to the SSE STAR50 (STAR50 INDEX) in December.
Sichuan Biokin Pharmaceutical (688506 CH) will replace Ninebot (689009 CH) in the index at the close on 8 December.
One way turnover is estimated at 2.18% and will result in a one-way trade of CNY 3,065m. Sichuan Biokin Pharmaceutical (688506 CH) has moved up and there will be pre-positioning.

A/H Premium Tracker (To 24 Nov 23): H Down Vs A, SOUTHBOUND Selling Continues, Tech Still Sold

The New and Better (17 weeks old) A-H Monitor has tables, charts, measures galore to track A/H premium positioning, southbound and northbound positioning/volatility in pairs over time, etc.
Hs with H/A pairs under-perform their As on average. H/A Pair intracorrelation is up and A premia continue to trend better.
SOUTHBOUND and NORTHBOUND were net sells overall. Everybody sold tech.

Weekly Deals Digest (26 Nov) – JSR, Taisho, Origin, OreCorp, Eoflow, Hollysys, Zeekr, Tata Tech

A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
ECM developments – Asahi Group Holdings (2502 JP)‘s US$1.3 billion secondary offering; ZEEKR (ZK US), Tata Technologies (TATATECH IN) and Cainiao Smart Logistics Network (1437124D HK) IPOs
Event-Driven developments – JSR Corp (4185 JP), Taisho Pharmaceutical Holdin (4581 JP), Origin Energy (ORG AU), Orecorp Ltd (ORR AU), Eoflow (294090 KS), Hollysys Automation Technologies (HOLI US).

Last Week in Event SPACE: JSR, Prosus/Tencent, Hollysys, Tata Consultancy, Geely, EOFlow

Now the time decay to expected approvals and tender offer start for JSR Corp (4185 JP) are getting steep. Time to Fight The FUD.
The accretion trade is going to plan as Prosus NV (PRX NA) sells Tencent (700 HK); and Prosus and Tencent both back their own shares.
Hollysys Automation Technologies (HOLI US)‘s board capacity to sabotage calling an SGM has finally run out of puff.

Mainland Connect NORTHBOUND Flows (To 24 Nov 23): Chongqing Changan (Bought) Vs BYD (Sold)

This is the somewhat-brand-spanking-new Quiddity Mainland Connect NORTHBOUND Monitor. We work off the same presentation as the A/H Premium Monitor and HK Connect SOUTHBOUND Monitor.
The same few names continue at the top of the gross flows list – Kweichow Moutai, Contemporary Amperex, Zhongji Innolight, etc, but the nets are changing (and Chongqing Changan)
Last week, NORTHBOUND were again net sellers (RMB -3.16bn), but Shanghai saw net buys. The top two flows were Chongqing Changan Automobile Company (200625 CH) to buy, BYD to sell.

(Mostly) Asia-Pac Weekly Risk Arb Wrap: Origin Energy, Healius, OreCorp, Haitong Int., Taisho Pharma

I tally 39 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
One new deal discussed on Smartkarma this week: Taisho Pharmaceutical Holding (4581 JP)‘s MBO.
Key updates on: Origin Energy (ORG AU), Healius (HLS AU), OreCorp (ORR AU), Haitong Int’l (665 HK), JSR Corp (4185 JP), Eoflow (294090 KS), T&K TOKA, and Hollysys (HOLI US).

SSE50 Index Rebalance: Five Changes; Adds & Deletes Moving in Lockstep

There are 5 changes for the SSE50 Index (SSE50 INDEX) that will be implemented at the close on 8 December. There is over 1x ADV to trade on some stocks.
We estimate a one-way turnover of 5.4% at the December rebalance leading to a one-way trade of CNY 4.85bn. Index arb activity could add to the impact on the stocks.
The adds, deletes and SSE50 Index (SSE50 INDEX) have moved nearly in lockstep since May and the passive flows could move things around a bit.

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Nov 25

Daily Brief Event-Driven: Taisho Pharma (4581 JP) – Japan’s Newest Biggest MBO; The Price Is Light! and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Taisho Pharma (4581 JP) – Japan’s Newest Biggest MBO; The Price Is Light!
OreCorp: Silvercorp Bumps. Goyder Now Supportive
Taisho Pharmaceutical (4581 JP): MBO Tender Offer at JPY8,620
EQD | Volatility Update: Weekly Review of Vol Changes and Best Trades-Giving Thanks

Taisho Pharma (4581 JP) – Japan’s Newest Biggest MBO; The Price Is Light!

Just past the 22-year anniversary of the deal-break from a previous takeover involving the large OTC drug firm, Taisho Pharmaceutical Holdin (4581 JP) announced an MBO Takeover for the company.
Set at a 55.5% premium, it is not particularly surprising as a deal. The family is rolling in their interests. It looks like estate planning. The Board supports and recommends.
Unfortunately, like many recent MBOs, this one is light at 0.85 book where net cash, securities, and net receivables and inventory make up 68% of the takeover price.

OreCorp: Silvercorp Bumps. Goyder Now Supportive

On the 6 August, Canada’s Silvercorp (SVM CN) offered shareholders of Western Australian-based miner OreCorp (ORR AU) A$0.15 in cash and 0.0967 new Silvercorp shares, by way of a Scheme.
The Scheme Booklet was despatched on the 6 November with a Scheme Meeting on the 8 December. The IE viewed terms as fair.
Silvercorp has now bumped the cash terms to $0.19/share from $0.15/share. All other terms remain unchanged. Tim Goyder (5.14%) is now supportive. Done and done.

Taisho Pharmaceutical (4581 JP): MBO Tender Offer at JPY8,620

Taisho Pharmaceutical Holdin (4581 JP) has recommended an MBO tender offer of JPY8,620 per share, a 55.5% premium to the undisturbed (24 November).
The transaction is a two-step acquisition through a cash tender offer and subsequent squeeze-out. The lower limit of the tender offer is set at a 66.67% ownership ratio.
Irrevocables represent a 40.31% ownership ratio. The minimum acceptance condition requires a 44% minority acceptance rate. The offer is attractive vs. historical and peer multiples.

EQD | Volatility Update: Weekly Review of Vol Changes and Best Trades-Giving Thanks

By Simon Harris

Weekly summary of vol changes and moves across Global Markets
Analysing ATM volatility and skew changes over the last 5 days
We suggest a few trades to take advantage of the implied vol surfaces

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Nov 24

Daily Brief Event-Driven: Origin: Brookfield’s “Inferior” Alternative Proposal and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Origin: Brookfield’s “Inferior” Alternative Proposal
KOSDAQ150 Index Rebalance: 17 Changes a Side; Many Surprises
EOFlow (Further) Tests Investor Patience
KOSPI200 Index Rebalance: Mostly Expected Though Some Discretion Used
CareNet (2150) – Watch the TOPIX Birdy (Smallcap)
Origin Energy (ORG AU): Brookfield/EIG’s Latest Effort Falls Flat
Understanding & Assessing Yearend Dividend Arbitrage Structure Using Futures in Korea
Hollysys (HOLI US): Progress as a Binding Proposal Targeted for Mid-December
OreCorp (ORR AU): Silvercorp Returns with a Higher Offer
LX International: Positive Impact from Not Participating in Main Bidding for HMM

Origin: Brookfield’s “Inferior” Alternative Proposal

Origin Energy (ORG AU)‘s Scheme vote today was always going to be a tenuous affair with AusSuper’s ~17.5% blocking stake, and Perpetual also firmly in the “against” camp.
The Scheme meeting has now been adjourned. Origin said that based on the proxy votes, it was unlikely the Scheme would have achieved the required 75% approval by shareholders.
In addition, the Brookfield-led consortium has pitched a alternative non-binding and indicative proposal which Origin views as inferior to the existing Scheme, and has significant reservations as to its complexity.

KOSDAQ150 Index Rebalance: 17 Changes a Side; Many Surprises

There are 17 inclusions and 17 exclusions for the KOSDAQ 150 Index (KOSDQ150 INDEX) at the December rebalance to be implemented at the close on 14 December.
While most of the inclusions were expected, there are many differences on the deletes. Trading the strategy becomes tougher with the short sell ban in place.
The adds have started to outperform the deletes over the last month and there could be more movement over the next 3 weeks to implementation.

EOFlow (Further) Tests Investor Patience

Back on the 25 May, when Medtronic Plc (MDT US) enter into a SPA with EOFlow (294090 KS)‘s CEO, with a follow-on Tender Offer, the whole construct looked pretty clean.
Then in August Insulet Corp (PODD US) launched its lawsuit, which in hindsight, should have been expected. Then earlier this month, news surfaced concerning a stock-backed loan to the CEO.
Now the CEO is selling, presumably to repay his collateralized loan. Shares are down 38% since the resumption of trading, and are now at a whopping 122% spread to terms.

KOSPI200 Index Rebalance: Mostly Expected Though Some Discretion Used

There will be 7 additions and 7 deletions for the Korea Stock Exchange KOSPI 200 (KOSPI2 INDEX EQUITY) at the December rebalance that will be implemented on 14 December.
The rebalance is on expected lines, though the index committee decided not to add Youngpoong Paper (006740 KS) to the index. Not really a big surprise given the price move.
HDC Hyundai Development Co-Engineering & Construction (294870 KS) is a surprise delete and there is not much short interest that could cover against the passive selling.

CareNet (2150) – Watch the TOPIX Birdy (Smallcap)

Carenet Inc (2150 JP) is a “medical contents” provider. It acts as a distributor of information to doctors and medical practitioners over the internet, and also consults with pharmaceutical companies.
On Wednesday, they announced that they were going to move from TSE Growth to TSE Prime as of 29 November.
At ¥31bn market capand this may turn people off, but it may be a treat for some. There is a reason why there are some big holders.

Origin Energy (ORG AU): Brookfield/EIG’s Latest Effort Falls Flat

Origin Energy (ORG AU) has postponed its scheme meeting to 4 December after it received a non-binding indicative proposal from Brookfield/EIG to amend the current scheme.
The Board admitted the current scheme was likely to be voted down if the meeting was held today. The alternative transaction structure will struggle to gain shareholder support.
If Brookfield/EIG walks, the share price will fall, at least in the short term. We think a reasonable deal break price is A$7.40, an 11% downside to the last close.

Understanding & Assessing Yearend Dividend Arbitrage Structure Using Futures in Korea

As the ex-dividend date in Korea has been before the dividend is determined, SSFs trade at a discount based on the anticipated dividend rather than adjusting dividend settlement proceeds explicitly.
The current dividend arbitrage yield for the financial companies can be seen as reflecting the postponement of the ex-dividend date to the next year.
We should pay attention to those with a significant dividend arbitrage yield but that did not amend their articles of incorporation earlier this year.

Hollysys (HOLI US): Progress as a Binding Proposal Targeted for Mid-December

The Hollysys Automation Technologies (HOLI US) Board has finally succumbed to shareholder pressure by targeting a special meeting of shareholders in the week commencing 22 January 2024.
The special meeting is a side event as the Board targets a binding proposal by mid-December, with some bidders proceeding to the confirmatory due diligence stage.
The BVI takeover structure and Hollysys’ undemanding valuation facilitate a competitive bidding process. A 10% uplift to the current highest offer (Recco’s US$26.50 offer) is possible.

OreCorp (ORR AU): Silvercorp Returns with a Higher Offer

Orecorp Ltd (ORR AU) has disclosed a revised offer from Silvercorp Metals (SVM US) at A$0.19 cash per share and 0.0967 SVM shares per ORR share.
The revised offer was necessitated due to the decline in SVM shares. Since 7 August, the revised offer is, on average, 7.8% higher than the previous offer.
Directors and irrevocables represent around 20% of voting rights. The revised offer should help the scheme get up. At the last close, the gross spread was 8.6%.

LX International: Positive Impact from Not Participating in Main Bidding for HMM

LX International announced today that it will not participate in the main bidding to acquire HMM Co.
This is likely to have a positive impact on LX International’s share price as many investors are relieved that company will not raise excessive amounts of capital to acquire HMM.
In addition, by not acquiring HMM, LX International has enough financial resources to continue to pay high dividends.

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Nov 23

Daily Brief Event-Driven: JSR (4185) – Time To Fight The FUD and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

JSR (4185) – Time To Fight The FUD
Ecopro Materials KOSPI 200 Fast Entry Assessment: With K Car as the Outgoing Constituent
Geely Stalls As ZEEKR Spins Off
S&P/ASX Index Rebalance Preview: Big Impact; A Week From Announcement
JSR Corporation (4185 JP): Risk/Reward as SAMR Approves Broadcom/VMware
Xiaomi (1810 HK): Outperformance Leads to Passive Selling & Opens Up Trading Opportunities
A Potential Fight for Management Rights of Socar Between Lee Jae-Woong and Lotte Rental
EQD | A Quick US/Global Equities Correction IS Possible Soon (…a Really OVERSOLD VIX…)
Blackstone&Permira/Adevinta: Firm Offer

JSR (4185) – Time To Fight The FUD

Many months ago I suggested the JIC Tender Offer JSR Corp (4185 JP) was not overwhelmingly high-priced, but that it would be “heavy” for months to come.
FUD and Flows would widen the spread. And they did.
Now the time decay to expected approvals and tender offer start are getting steep. Time to Fight The FUD.

Ecopro Materials KOSPI 200 Fast Entry Assessment: With K Car as the Outgoing Constituent

The fast entry screening spans from November 17th to December 7th. Given its current market cap, we should anticipate the potential success of fast entry.
The implementation date will coincide with the effective day of the December rebalancing, which is December 15th. There are precedents of successfully achieving fast entry with such a tight schedule.
The setup will be challenging due to the short selling ban. Nevertheless, with an existing position, there may be value in a market timing approach.

Geely Stalls As ZEEKR Spins Off

Geely Auto (175 HK)‘s share price has largely swatted away the pending US-listing of ZEEKR (ZK US).
ZEEKR was valued at US$13bn after a US$750mn fund raising in February. At that value, Geely’s 54.7% stake is worth 58% of its market cap.
Geely is trading around a six and half year low, and below its five average trailing/forward metrics.

S&P/ASX Index Rebalance Preview: Big Impact; A Week From Announcement

There could be 3 changes for the S&P/ASX 200 (AS51 INDEX) in December. There are unlikely to be any changes for indices higher up the hierarchy.
Passive trackers will need to buy between 7-11 days of ADV in the inclusions while the impact on the deletions will be larger at between 11-23 days of ADV.
Short interest has decreased on the potential inclusions and increased on the potential deletions. There is significant pre-positioning on some of the stocks.

JSR Corporation (4185 JP): Risk/Reward as SAMR Approves Broadcom/VMware

JSR Corp (4185 JP)’s pre-conditional tender offer from JIC is conditional on several regulatory approvals, notably China SAMR approval. JIC can waive the conditions precedent.
A takeaway from the Broadcom (AVGO US)/VMware Inc Class A (VMW US) SAMR clearance is that if JIC is willing to commit to restrictive conditions, SAMR approval can be obtained.
On 6 November, JSR reiterated a late December tender start. However, with time fast running out, the likely scenario is SAMR conditional approval with a delayed tender start.

Xiaomi (1810 HK): Outperformance Leads to Passive Selling & Opens Up Trading Opportunities

Xiaomi Corp (1810 HK) is a member of the Hang Seng Index, Hang Seng China Enterprises Index and Hang Seng TECH Index, among others.
Capping of stocks at 8% of the index weight will lead to selling in Xiaomi (1810 HK) at the close on 1 December, mainly from Hang Seng TECH Index trackers.
Relative underperformance vs the HSTECH Index from now to Tuesday will require passive to sell less stock, while outperformance will lead to increased passive selling. That opens up trading opportunities.

A Potential Fight for Management Rights of Socar Between Lee Jae-Woong and Lotte Rental

It was announced that founder of Socar Lee Jae-Woong purchased 336,000 additional shares of Socar. This signals a potential M&A fight for Socar between Lee Jae-Woong/related parties and Lotte Rental.
Founder Lee Jae-Woong and related parties currently own 37.8% stake in Socar versus Lotte Rental which has 32.9% stake.
Socar is currently trading at more attractive valuations and we like the company’s aggressive strategy to raise profitability.

EQD | A Quick US/Global Equities Correction IS Possible Soon (…a Really OVERSOLD VIX…)

By Nico Rosti

The VIX INDEX has reached very OVERSOLD levels, it could bounce soon. Our models predict a short-lived bounce, probably 1-week.
An increased VIX could trigger panic selling also in Asia-Pacific markets, dragging down returns and increasing volatility.
The S&P500 is also WEEKLY OVERBOUGHT, the combination of VIX OVERSOLD and SPX OVERBOUGHT for us is a clear indication: WEEKLY pullback incoming!

Blackstone&Permira/Adevinta: Firm Offer

By Jesus Rodriguez Aguilar

Permira and Blackstone announced a NOK 115.0/share offer, two months after their approach was unveiled. 3-month VWAP premium is 52.6%. The offer represents 18.3x EV/NTM Fwd EBITDA (vs. 14.6x comparables)
The three largest shareholders (c.72.3%) communicated at the outset their support, so it’s a done deal. 90% condition can be waived. Board says price “financially fair”, but cannot recommend it.
I set my TP at NOK 115. The consortium could achieve an IRR of 17.8% by year 8. Spread is 3.3%/6.65% (gross/annualised, assuming settlement by 31 May). Long.

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Nov 22

Daily Brief Event-Driven: What Should We Do About the Futures Basis Spread Caused by Hanwha Ocean’s Rights Offering? and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

What Should We Do About the Futures Basis Spread Caused by Hanwha Ocean’s Rights Offering?
Hollysys (HOLI US): In Court Today …
Taiwan Top 50 ETF Rebalance: Alchip (3661 TT) Going Back-To-Back?
Haitong International (665 HK): Vote on 15 December
Tata Consultancy Services (TCS IN): US$2bn Mega Buyback; Two More Trading Days Before Ex-Date
Nice Holdings: Material Increase in Dividends and Share Cancellations
DMA ONE: JSE December ‘23 Rebalance Rankings
Haitong Sec (665 HK) 15th Dec Scheme Vote
H.I.G./DX (Group): Recommended Offer with Possibility of Bump-Up

What Should We Do About the Futures Basis Spread Caused by Hanwha Ocean’s Rights Offering?

The day the basis spread disappears is this Friday, the 24th of November. This mirrors a comparable pattern observed during Korean Air’s rights offering in 2020.
If the spot price does not fall below the futures price of our entry until this Friday, we could potentially be in a profitable range.
There has been a notable pattern where the spread continues to exist until just before the moment when new share selling becomes feasible.

Hollysys (HOLI US): In Court Today …

A fortnight after co-COOs pitched a US$25/share indicative Offer for Hollysys (HOLI US), Ascendent Capital, holding 13.7%, tabled a US$26/share Offer. The Recco/Dazheng consortium offered US$26.50 a week later.
There is currently a dispute over the ownership and control of Ace Lead’s shares in Hollysys, which was subject to an injunction hearing in the Hong Kong High Court.
That hearing took place today. So I went along to hear first-hand the key arguments from both sides.

Taiwan Top 50 ETF Rebalance: Alchip (3661 TT) Going Back-To-Back?

Alchip Technologies (3661 TT) could replace Feng Tay Enterprise (9910 TT) in the Yuanta/P-Shares Taiwan Top 50 ETF at the December rebalance.
This ETF inclusion for Alchip Technologies (3661 TT) could come back-to-back with another index inclusion scheduled for the end of November.
Shorts in Alchip Technologies (3661 TT) have been building up while shorts in Feng Tay Enterprise (9910 TT) have surged over the last few months.

Haitong International (665 HK): Vote on 15 December

Haitong International Securities Group (665 HK)’s scheme meeting is on 15 December. The IFA considers Haitong Securities Co Ltd (H) (6837 HK)’s HK$1.52 per share offer fair and reasonable.
Key conditions include approval by at least 75% of independent shareholders (<10% of independent shareholders rejection) and a headcount test. No shareholder holds a blocking stake.
The high takeover premium ensures a done deal. At the last close and for the 18 January 2024 payment, the gross and annualised spread is 2.7% and 18.2%, respectively.

Tata Consultancy Services (TCS IN): US$2bn Mega Buyback; Two More Trading Days Before Ex-Date

Indian IT services giant Tata Consultancy Svcs (TCS IN) launched a US$2bn Buyback last week.
The company will buy up to 40,963,855 shares in a Tender Offer-style Buyback at a Buyback Price of INR4,150/share (an 18% premium to today’s close).
In this insight, we take a closer look at the indicative timeline of key events in this Buyback, the company’s Buybacks history, proration details, and what this means for investors.

Nice Holdings: Material Increase in Dividends and Share Cancellations

On 21 November, Nice Holdings (034310 KS) announced new shareholder return policies that included material increase in dividends and share cancellations.
First, Nice Holdings has decided to raise dividends by more than 10% every year for the next three years. Nice Holdings paid dividend per share of 410 won last year.
Nice Holdings also announced that it will cancel more than 1% of total outstanding shares every year for the next three years.

DMA ONE: JSE December ‘23 Rebalance Rankings

By Charlotte van Tiddens, CFA

We do not expect any constituent changes for the following indices: Top 40, Top 40 SWIX, FINI, FINDI or INDI.
HAR is expected to enter the RESI and AMS is expected to fall out.
After much anticipation, ANG’s indicative free float came in at 75%, 21.9 percentage points lower than the current SWIX float of 96.8%.

Haitong Sec (665 HK) 15th Dec Scheme Vote

Once the pre-cons were satisfied on the 15th November, it seemed pessimistic to stick to the delayed 29 December dispatch date for Haitong International Securities Group (665 HK)‘s Scheme Document.
And right on cue, the Doc was issued last night (21 Nov). The Court Meeting is the 15 December. with an expected cash despatch on or around the 18 January.
Trading at a gross spread to terms of 2.7%. The headcount test applies. But this should comfortably get up.

H.I.G./DX (Group): Recommended Offer with Possibility of Bump-Up

By Jesus Rodriguez Aguilar

DX Group PLC (DX/ LN) agreed to a 47.5p/share offer (plus 1p dividend, ex-dividend 16 November) from H.I.G., 33% premium, 8.8x 2023a EBITDA, to be conducted via scheme of arrangement.
DX had a substantial improvement in revenue and profitability in 2018-2023. Although irrevocables represent 33.1% of the share capital, some shareholders have some doubts and letters of intent total 21.5%.
Some shareholders will try to extract more: DCF-based 50p could be defended, 5.2% above current offer. Spread 1.05%/3% (gross/annualised, assuming 30 March settlement). I’d be long in case of bump-up.

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Nov 21

Daily Brief Event-Driven: Daito Trust (1878) Doing a ToSTNeT Buyback Which Is NOT a ToSTNeT Buyback… Unless It Is. and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Daito Trust (1878) Doing a ToSTNeT Buyback Which Is NOT a ToSTNeT Buyback… Unless It Is.
StubWorld: Prosus Trading “Rich”. And So It Should Be
Yuanta/P-Shares Taiwan Div+ ETF Rebalance Preview: 18% One-Way Turnover & US$2.74bn Trade
Quiddity Leaderboard TDIV Dec 23: US$1.36bn One-Way, 20%+ Turnover, 2 Weeks to Announcement
Quiddity Leaderboard T50/100 Dec 23: Multiple Moves Could Affect TDIV Flows
FXI Rebalance Preview: One Potential Change in December
Hyundai Elevator: Hyun Jeong-Eun Resigns from the BOD Chairwoman Position
EQD | Modest ASX200 Rally Raises Questions About Direction
Healius Taps The Market. ACL Should Walk

Daito Trust (1878) Doing a ToSTNeT Buyback Which Is NOT a ToSTNeT Buyback… Unless It Is.

Back on 30 October, Daito Trust Construct (1878 JP) announced a large earnings, a new Shareholder Return policy, a higher payout this year, and a big buyback.
It said the buyback period would start two days later, but they did not specify the method (Daito Trust Construction (1878) – Big Buyback, Dense Register, 120% Payout This Year
Today they announced a ToSTNeT-3 purchase for “the whole size”, which is accompanied by a “Japan-style ASR.” Know your details.

StubWorld: Prosus Trading “Rich”. And So It Should Be

The accretion trade is going to plan as Prosus NV (PRX NA) sells Tencent (700 HK); and Prosus and Tencent both back their own shares.
Preceding my comments on Prosus/Tencent One are the current setup/unwind tables for Asia-Pacific Holdcos
These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

Yuanta/P-Shares Taiwan Div+ ETF Rebalance Preview: 18% One-Way Turnover & US$2.74bn Trade

Using data from the close on 20 November, there could be 6 adds and 5 deletes to the Yuanta/P-Shares Taiwan Dividend Plus ETF in December.
There will also be capping and funding flows that will lead to a one-way turnover of 17.8% and a one-way trade of US$1.37bn.
There are 16 stocks with at least 3 days ADV to trade from passive trackers and another 10 stocks that have at least 1-day ADV to trade.

Quiddity Leaderboard TDIV Dec 23: US$1.36bn One-Way, 20%+ Turnover, 2 Weeks to Announcement

In this insight, we take look at Quiddity’s expectations for index changes and capping flows for the TDIV Index for the December 2023 review.
There are some key changes to expectations since my last TDIV insight as a consequence of changes in share prices and/or dividend expectations.
I currently expect 6 ADDs and 5 DELs during the December 2023 review.

Quiddity Leaderboard T50/100 Dec 23: Multiple Moves Could Affect TDIV Flows

In this insight, we take a look at the names leading the race to become ADDs/DELs for the T50 and T100 Indices for the December 2023 Rebalance.
While I do not expect to see any changes to the T50 index, I expect four index changes for the T100 index.
Some of the names involved in the T100 index changes could have significant influence on our TDIV index flow expectations for December 2023.

FXI Rebalance Preview: One Potential Change in December

With the review period complete, BeiGene (6160 HK) could replace Anhui Conch Cement (914 HK) in the iShares China Large-Cap (FXI) (FXI US) in December.
There will be over 2 days of ADV to buy in BeiGene (6160 HK) and nearly 2 days of ADV to sell in Anhui Conch Cement (914 HK).
Short interest has been increasing in BeiGene (6160 HK) and dropping in Anhui Conch Cement (914 HK) over the last few months.

Hyundai Elevator: Hyun Jeong-Eun Resigns from the BOD Chairwoman Position

On 17 November, Hyun Jeong-Eun resigned from the Hyundai Elevator Co Board of Directors Chairwoman and internal director positions, mainly due to strong pressures from other major shareholders.
With Hyun Jeong-Eun finally out of the company, Hyundai Elevator is likely to significantly emphasize on improving its corporate governance.
Hyundai Elevator is considering new shareholder return policies, including a potential 50%+ dividend payout, higher share buybacks, and a mandatory minimum dividend yield.

EQD | Modest ASX200 Rally Raises Questions About Direction

By Nico Rosti

The S&P/ASX 200 INDEX closed up last week (CC=+1), currently uptrending, but the rally is weak, there is a chance that it could fall already this week and close down.
The index has reached Q2 resistance, that’s the area where the index starts to be OVERBOUGHT, based on the current pattern.
We see a potential pullback between -1% and -2% from current levels, across 1-2 weeks, this would bring the index down to the 6990-6920 support area.

Healius Taps The Market. ACL Should Walk

Back on the 20 March, Australian Clinical Labs (ACL AU) announced a merger proposal for Healius (HLS AU), the completion of which would create Australia’s largest pathology provider.
In its Target Statement on the 4 May, Healius’ board unanimously recommended that Healius shareholders reject the Offer. A forthcoming ACCC decision may also conclude a merger is verboten.
Now Healius has announced a “capital restructure reset” via issuing new shares at $1.20/share, a hefty 34.6% discount to last close. This breaches a number of prescribed occurrences.

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Nov 20

Daily Brief Event-Driven: Understanding Extreme SSF Spreads in Korea & Trading Approaches and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Understanding Extreme SSF Spreads in Korea & Trading Approaches
HSI Dec23 Index Review/Flows – Li Auto & Wuxi Apptec IN, No Deletes; 100 Names a Distant Dream
Origin Energy (ORG AU): State of Play
Hang Seng Tech Dec23 Index Review/Flows – No Name Changes, Some Big Capping Flows
HSCEI Index Rebalance: Zhongsheng (881 HK) Uses Up Another Life
A/H Premium Tracker (To 17 Nov): H up Vs A Despite SOUTHBOUND Net Selling; High Div SOEs Normalising
HSCEI Dec23 Index Review/Flows – NO ADDs, No DELETEs; ~2.5% One Way
Merger Arb Mondays (20 Nov) – Eoflow, Origin, OreCorp, Azure, Hollysys, Toyo, Amara, Haitong Intl
HSCI Index Rebalance: Keep (3650 HK) & TUHU Car (9690 HK) Added
HK Connect SOUTHBOUND (To 17 Nov 23); High-Div SOEs Pause, Tech + ETFs Break 16wk Inflow Streak

Understanding Extreme SSF Spreads in Korea & Trading Approaches

Futures backwardation resulting from the short selling ban will persist. Also, the contraction of market making will lead to more widespread and frequent occurrences of extreme spreads.
The straightforward sell arbitrage (reverse cash and carry) is no longer viable. We must pay attention to the emergence of new price and trading patterns driven by these market conditions.
One potential pattern is the possibility of spot buying centered around those that exhibited extreme spreads at expiration. This has already been observed to some extent in this month’s expiration.

HSI Dec23 Index Review/Flows – Li Auto & Wuxi Apptec IN, No Deletes; 100 Names a Distant Dream

On Friday, Hang Seng Indices announced the changes to the benchmark Hang Seng Index, the index in the family with the largest AUM.
Li Auto (2015 HK) and WuXi AppTec (2359 HK) are added. There are no deletions.
I see 3.4% a side to trade and across the three major indices there are larger net flows, but few compelling ones given possible pre-positioning.

Origin Energy (ORG AU): State of Play

The Origin Energy (ORG AU) scheme vote is on 23 November. Brookfield/EIG’s best and final offer is A$6.59 and US$1.86 per share, currently worth A$9.45.
With AusSuper reportedly increasing its stake past 17% on Friday, the scheme vote remains too close to call. Brookfield/EIG will need a large YES vote turnout for a successful vote.
If the scheme is voted down, there are mainly three Plan Bs – Brookfield/EIG’s alternate transaction structure, Board-initiated strategic review or maintaining the status quo.

Hang Seng Tech Dec23 Index Review/Flows – No Name Changes, Some Big Capping Flows

The Dec 23 review results for the Hang Seng Tech Index were announced on Friday 17 November after the close.
There were no ADDs to or DELETEs from the index, in something of a surprise.
The “big flow” on HS TECH is the downweight on Xiaomi Corp (1810 HK) due to sharp capping after significant outperformance since the August review.

HSCEI Index Rebalance: Zhongsheng (881 HK) Uses Up Another Life

For a second review running, Zhongsheng Group (881 HK) has avoided being deleted from the Hang Seng China Enterprises Index (HSCEI INDEX).
That means China Unicom Hong Kong (762 HK) misses out on index inclusion, but there is still hope for the next one.
There does not appear to be any significant positioning on either stock and any large moves early in the coming week could be short lived.

A/H Premium Tracker (To 17 Nov): H up Vs A Despite SOUTHBOUND Net Selling; High Div SOEs Normalising

The New and Better (16 weeks old) A-H Monitor has tables, charts, measures galore to track A/H premium positioning, southbound and northbound positioning/volatility in pairs over time, etc.
Hs with H/A pairs outperform their As on average with higher-liquidity Hs outperforming more. High Premium As not seeing shrinking premia on average.
SOUTHBOUND and NORTHBOUND were net sells overall. It looked like the combination of NORTHBOUND and SOUTHBOUND put on a long H short A in the non-bank financial sector.

HSCEI Dec23 Index Review/Flows – NO ADDs, No DELETEs; ~2.5% One Way

The HSCEI Review for December 2023 was announced on Friday 17 November.
There were no ADDs and no DELETEs, which was a bit of a surprise.
There is about 2.8% one-way to trade. Alibaba (ADR) (BABA US) is a sell across all three major indices.

Merger Arb Mondays (20 Nov) – Eoflow, Origin, OreCorp, Azure, Hollysys, Toyo, Amara, Haitong Intl

We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
Highest spreads – Eoflow (294090 KS), 111 Inc (YI US), Irc Ltd (1029 HK), Hollysys Automation Technologies (HOLI US), Origin Energy (ORG AU), JSR Corp (4185 JP), Healius (HLS AU).
Lowest spreads – Azure Minerals (AZS AU), Pact Group Holdings (PGH AU), Tietto Minerals Ltd (TIE AU), T&K Toka Co Ltd (4636 JP), IJTT Co., Ltd. (7315 JP).

HSCI Index Rebalance: Keep (3650 HK) & TUHU Car (9690 HK) Added

Keep Inc (3650 HK) and Tuhu Car (9690 HK) will be added to the Hang Seng Composite Index (HSCI) after the close of trading on 1 December.
Keep (3650 HK) will be added to Southbound Stock Connect from the open on 4 December while Tuhu Car (9690 HK) will only be added to Stock Connect in April.
There are lock-up expiries on both stocks, prior to or after inclusion in Stock Connect, and trading strategies will need to take that into account.

HK Connect SOUTHBOUND (To 17 Nov 23); High-Div SOEs Pause, Tech + ETFs Break 16wk Inflow Streak

This is the somewhat brand-spanking-new Quiddity HK Connect SOUTHBOUND Monitor. We work off the same presentation as the A/H Premium Monitor and Mainland Connect NORTHBOUND Monitor.
SOUTHBOUND flows the last several weeks clearly indicated a momentum move. The top net sells were all down. The top buys were all up. This week that trend moderated significantly.
SOUTHBOUND breaks a 17-week inflow streak with HK$2.1bn of net outflows entirely driven, it appears, by relatively few accounts punting large size in local (HK-listed) ETFs

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Nov 19

Daily Brief Event-Driven: Index Rebalance & ETF Flow Recap: FRTIB and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Index Rebalance & ETF Flow Recap: FRTIB, Japan, CSI300, CSI500, STAR50, WuXi XDC, Asahi
Furuya Metal (7826 JP) TOPIX Inclusion: Big Impact but Even Bigger Overhang
Hang Seng Index Rebalance: Li Auto (2015) & WuXi AppTec (2359) Added
Last Week in Event SPACE: Zhejiang, Pasona, ENN Energy, Asahi Group, Azure Minerals
EQD | Here Is Why the S&P500 MONTHLY Rally Could Continue in December
(Mostly) Asia-Pac Weekly Risk Arb Wrap: Benefit One, Japan Best Rescue System, IJTT, Ohizumi, VNET
SK Square: Two Remaining Credible Options for 11 Street
HSTECH Index Rebalance: No Constituent Changes; Round-Trip Trade of US$1.4bn
Weekly Deals Digest (19 Nov) – Benefit One, JBR, Eoflow, Haitong, Vinda, Asahi, Tata Tech, Zeekr

Index Rebalance & ETF Flow Recap: FRTIB, Japan, CSI300, CSI500, STAR50, WuXi XDC, Asahi

The FRTIB benchmark switch from the EAFE Index to the ACWI IMI ex-USA ex-China ex-Hong Kong Index will result in a round trip trade of around US$56bn.
The changes for the CSI 300, CSI 500, STAR50, SSE50 and a bunch of other mainland China indices will be announced after market close on Friday.
Relatively quiet week for ETF flows with no major creations or redemptions during the week.

Furuya Metal (7826 JP) TOPIX Inclusion: Big Impact but Even Bigger Overhang

On 16th November 2023, Tokyo-based Industrial-use precious metal products manufacturer Furuya Metal (7826 JP) announced they would be moving from TSE Standard to TSE Prime on 6th December 2023.
This move would trigger a TOPIX Index Inclusion event at the end of January 2024 which would require all the TOPIX-tracking passive funds to buy shares in the company.
The company also launched an offering in conjunction with the TSE Prime announcement. In this insight, we take a look at the flow dynamics of the upcoming TOPIX Inclusion event.

Hang Seng Index Rebalance: Li Auto (2015) & WuXi AppTec (2359) Added

Li Auto (2015 HK) and WuXi AppTec (2359 HK) will be added to the Hang Seng at the close on 1 December taking the number of index constituents to 82.
Neither inclusion is a surprise. The non-inclusion of primary listed foreign companies is a bigger surprise – that could take place at the next rebalance.
Estimated one-way turnover is 3.53%, estimated one-way trade is HK$6.88bn (US$882m). Capping leads to buying in Alibaba (9988 HK) and selling in Tencent (700 HK) and HSBC (5 HK).

Last Week in Event SPACE: Zhejiang, Pasona, ENN Energy, Asahi Group, Azure Minerals

Pasona Group (2168 JP) is massively net cash. And it’s ofloading Benefit One Inc (2412 JP). Though we don’t know what the future holds, Pasona is the wrong price.
ENN Energy (2688 HK) controlling shreholder announced it intends to increase it stake. And it’s been in the market almost everry day since the interims.
Zhejiang Expressway (576 HK) announced its rights offering. It’s at a long-term low price, and about to earn a long-term high net income, and have a long-term high payout ratio

EQD | Here Is Why the S&P500 MONTHLY Rally Could Continue in December

By Nico Rosti

The S&P 500 INDEX will probably continue to rally in December (as long as the November rally does not reach extreme OVERBOUGHT conditions.
The OVERBOUGHT condition begins at around 4600, so the index is NOT overbought (yet).
The index will probably pullback soon for 1 or 2 weeks and then you can buy to ride the continuation of the rally into December (classic Christmas Rally).

(Mostly) Asia-Pac Weekly Risk Arb Wrap: Benefit One, Japan Best Rescue System, IJTT, Ohizumi, VNET

I tally 41 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
Six new deals were discussed this week: Benefit One (2412 JP), Japan Best Rescue System (2453 JP), IJTT (7315 JP), Ohizumi (6618 JP), Amara (AMA SP), and Atlantic Lithium (A11 AU).
Key updates took place for: VNET (VNET US), Eoflow (294090 KS), Azure Minerals (AZS AU), Origin Energy (ORG AU), Haitong International Securities Group (665 HK) and Shidax Corp (4837 JP).

SK Square: Two Remaining Credible Options for 11 Street

We discuss the two remaining options for 11 Street post the cancellation of its sale to Qoo10 Pte.
As these strategic sale of 11 Street to Qoo10 Pte. has failed, the possibility of a forced sale of 11 Street by the financial investors has increased.
The higher probability event is for the Nile Holdings consortium to try to sell 11 Street to other financial investors.

HSTECH Index Rebalance: No Constituent Changes; Round-Trip Trade of US$1.4bn

As expected, there are no constituent changes for the Hang Seng TECH Index (HSTECH INDEX) in December. However, there are float and capping changes for a lot of stocks.
Estimated one-way turnover is 4.8% leading to a one-way trade of HK$5.29bn (US$679m). There are 4 stocks with over 1 day of ADV to trade.
The largest selling will be on Xiaomi Corp (1810 HK) offset by buying in Meituan (3690 HK), JD.com (9618 HK) and Alibaba Group Holding (9988 HK).

Weekly Deals Digest (19 Nov) – Benefit One, JBR, Eoflow, Haitong, Vinda, Asahi, Tata Tech, Zeekr

A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
ECM developments – Asahi Group Holdings (2502 JP)‘s US$1.3 billion secondary offering; ZEEKR (ZK US), Tata Technologies (TATATECH IN) and Cainiao Smart Logistics Network (1437124D HK) IPOs
Event-Driven developments Benefit One Inc (2412 JP), Japan Best Rescue System Co (2453 JP), Eoflow (294090 KS), Haitong International Securities Group (665 HK), Vinda International (3331 HK), Amara Holdings (AMA SP).

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Nov 18

Daily Brief Event-Driven: EQD | Volatility Update: Weekly Review of Vol Changes and Best Trades-Ride the Wave and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

EQD | Volatility Update: Weekly Review of Vol Changes and Best Trades-Ride the Wave

EQD | Volatility Update: Weekly Review of Vol Changes and Best Trades-Ride the Wave

By Simon Harris

Weekly summary of vol changes and moves across Global Markets
Analysing ATM volatility and skew changes over the last 5 days
We suggest a few trades to take advantage of the implied vol surfaces

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Nov 17

Daily Brief Event-Driven: Pasona: The Wrong Price and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Pasona: The Wrong Price
New Phase in Korean Short Selling: Immediate Impact of MM and LP Short Selling Ban
EOFlow Craters. Medtronic Stays Mum
Asahi Group Holdings (2502) Offering – Some Index Demand But Needs Lots of Active Long-Onlies
Asahi Group (2502 JP): Big Placement with Limited Index Buying; Timing Is Key
Key Points We Should Know Regarding the Current Status of EOFlow
Asahi Group (2502 JP): US$1.3bn Secondary Placement
Quiddity Leaderboard ES50 Sep 24: The Race For Europe’s Multi-Billion Dollar Index Flows
Hong Kong CEO/Director Dealings (17 Nov): ENN’s Controlling Shareholder Buying; Li Buys More PCCW
DXN Holdings Lock-Up – PE Investor Could Sell Further Although Liquidity Is Weak

Pasona: The Wrong Price

As discussed here in a piece about the Partial Tender Offer, Pasona Group (2168) has agreed to sell its controlling stake in Benefit One (2412) to M3 (2413).
That will leave Pasona Group with a fair chunk of cash and possibly a residual stake in Benefit One, depending on the results.
Though we don’t know what the future holds, Pasona now is the wrong price for its future.

New Phase in Korean Short Selling: Immediate Impact of MM and LP Short Selling Ban

There is a prevailing sentiment in the local market that short selling by market makers (MM) and liquidity providers (LP) will effectively be prohibited very shortly.
The widening of the futures basis extends the influence of futures on the spot market prices. This is precisely where trading opportunities that we should be keenly observing may arise.
It also leads to a significant widening of ETF tracking errors due to the direct sell-off of underlying shares. We must capitalize on extreme spreads in ETFs.

EOFlow Craters. Medtronic Stays Mum

Five weeks after shares were suspended, EOFlow (294090 KS) shares resumed trading this morning, the 16 November. Wording is sparse on the resumption.
One small consolation was that EOFlow may benefit from the temporary ban on short selling. Irrespective, shares have declined ~27% at the open, as I type.
Elsewhere, Medtronic Plc (MDT US) provides no guidance. The only other news of note are the various court filings in the District Court of Massachusetts.

Asahi Group Holdings (2502) Offering – Some Index Demand But Needs Lots of Active Long-Onlies

Asahi Group Holdings (2502 JP) today announced a collection of 10 shareholders (mostly financial institutions) would sell a total of 33.48mm shares (6.6% of shares out) in Asahi Group.
This will become more of a thing going forward. Cross-holders “want” to unwind. And in many cases, the cross-held want to buy back stock (reduce E, raise ROE).
This deal is “good” in that it clears out a lot of the bank cross-holders in one fell swoop. But there are more crossholders behind.

Asahi Group (2502 JP): Big Placement with Limited Index Buying; Timing Is Key

Nine shareholders are looking to sell 33.48m shares of Asahi Group Holdings (2502 JP). That is US$1.28bn, 24x ADV and 6.6% of shares outstanding.
Given the recent run up in the stock, there could be downside over the next couple of weeks ahead of the pricing date.
There will be buying from global trackers but nothing from TOPIX trackers, so not a lot of stock will be mopped up. Passive buying before settlement could create a squeeze.

Key Points We Should Know Regarding the Current Status of EOFlow

It can be considered that the suspension of EOFlow’s trading and, furthermore, the risk of delisting have been completely eliminated at this point.
EOFlow emphasizes the possibility of circumventing sales of EOPatch by supplying EOPump to a JV in China. The key factors that initially sparked Medtronic’s interest in EOFlow are still valid.
If CEO Kim fails to repay a stock collateral loan of ₩20B or secure additional loans, approximately 4% of the total issued shares could be sold in the market.

Asahi Group (2502 JP): US$1.3bn Secondary Placement

Asahi Group Holdings (2502 JP) announced a pure secondary offering of 33.5 million or 6.61% of outstanding shares. At the last close, the placement was worth JPY194 billion (US$1.3 billion).
Notwithstanding Asahi’s explanation, the selling shareholders’ motivation for exiting their shareholding is likely to capitalise on the strong share price performance – Asahi shares are up 45% YTD.
Looking at recent large Japanese placements is instructive to understand the potential offer price. The pricing date will fall between 28 November and 1 December (likely 28 November).

Quiddity Leaderboard ES50 Sep 24: The Race For Europe’s Multi-Billion Dollar Index Flows

The ES50 Index is one of the most highly-tracked indices in Europe and the annual index review takes place in September every year.
This annual index review usually results in some of the most significant index flow events in Europe every year typically amounting to billions of dollars.
In this insight, we take an early look the names leading the race to become ADDs/DELs for the upcoming index review in September 2024.

Hong Kong CEO/Director Dealings (17 Nov): ENN’s Controlling Shareholder Buying; Li Buys More PCCW