Event-Driven

Following the short sell ban announced on the weekend, the KOSPI 200 and KOSDAQ 150 opened higher on Monday and rallied through the day.
A lot of the intraday gains on Monday have been given up over the next two trading days. Surprisingly, KRX data indicates that not a lot of shorts have covered.
Foreigners have been net cash buyers since Monday (could indicate covering of offshore borrow) while retail were big sellers on Monday.

Hollysys: Court Injunction Hearing Is Key

Talk about your never-ending story. I count at least seven non-binding Offers for Hollysys Automation Technologies (HOLI US) since December 2020, three of which are still on the table.
The latest, at US$26/share, was pitched earlier this week from Ascendent Capital Partners; who along with Changli Wang, Hollysys’ founder, previously made an US$23/share Offer in August 2021.
However, all these Offers are largely moot until we get closure at the court injunction hearing. If that occurs. Separately, I had a solid discussion with Hollysys’ IR.

Alchip Technologies GDRs Early Look – Another Well Flagged GDR Issuance in the Pipeline

By Clarence Chu

Alchip Technologies (3661 TT) is looking to raise around US$375m in its upcoming global deposit receipts (GDRs) offering.
Similar to previous GDR listings, the deal is a very well flagged one, with a drawn out process of regulatory/approval loops the firm has to jump through up till issuance.
Based on its board’s approval to issue up to 4m new shares in its GDR offering, the deal is a relatively small one at just 5.4% of Alchip’s current mcap.

CMIC (2309 JP) – Huge Business Model Plan Appears to Hide Assets, Then an MBO. Ugh…

CMIC Holdings (2309 JP) decided to “change its business model” this past spring, transferring control of a consolidated JV and other subs to DNP.
The result changed the accounting, and the business model, capitalising future cashflow and net income in a “hidden” asset which may or may not be in the Financial Advisor’s valuation.
My read is this is being done too cheaply, and the price should be 30-60% higher. But, it would be tough to block this.

StubWorld: Digital Garage Looking “Cheap”. Melco’s Consensus-Missing Results

Digital Garage (4819 JP) is coming up “cheap” versus Kakaku.com Inc (2371 JP); and Melco International Development (200 HK) is trading “rich” to Melco Resorts & Entertainment (MLCO US).
Preceding my comments on DG and Melco 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%.

Southern Cross/ARN Media: Getting Cosy?

Back on the 18 October, media play Southern Cross Media (SXL AU) announced a non-binding indicative proposal from ARN Media (A1N AU) and Anchorage.
SXL shareholders are being offered, by way of a Scheme, 0.83 ARN shares and A$0.296/share in cash. SXL considers the terms to be “complex, and highly conditional”.
Reportedly SXL has now signed a confidentiality agreement to gather more info on ARN, possibly leading to a firm deal.

Momentum Trading Opportunities Among Top 50 Stocks in KOSDAQ With Highest Short Interest Ratios

In this insight, we discuss near-term momentum trading opportunities among the top 50 stocks in KOSDAQ with highest short interest ratios.
We have identified 10 companies in KOSDAQ that have high short interest ratios, among the worst performing stocks YTD, but with strongest share price performance in the past three days.
These 10 stocks are up on average 10% in the past three trading days, outperforming KOSDAQ which is up 3.7% in the same period.

ChiNext/ChiNext50 Index Rebalance Preview: Time for a Turnaround

With the review period complete, we forecast 9 changes for the ChiNext Index (SZ399006 INDEX EQUITY) and 5 changes for the ChiNext 50 Index in December.
Some of the potential adds will also have passive flows from the CSI Smallcap 500 Index trackers at the same time as the ChiNext Index rebalance.
The potential adds have slipped a lot versus the potential deletes over the last few months as the National Team has tried to stabilise the market via ETF creations.

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Nov 08

Daily Brief Event-Driven: Trading Opportunities Targeting Potential ADR Discount Increases from Korea’s Short-Selling Ban and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Trading Opportunities Targeting Potential ADR Discount Increases from Korea’s Short-Selling Ban
TOPIX Inclusions: Who Is Ready (Nov 2023)
Sankyo (6417) – Second Go-Round for a BIG Buyback
Japan H1 Bank Earnings: Last Minute Update; Suruga Bank Reacts Well
Hollysys (HOLI US): Ascendent Capital Joins the Fray
Momentum Trading Opportunities Among Top 50 Stocks in KOSPI With Highest Short Interest Ratios
CMIC Holdings (2309 JP): MBO Tender Offer at JPY2,650
SSE50 Index Rebalance Preview: Five Potential Changes; Hygon Stands Out
Telefonica/Telefonica Deutschland Holding AG: Offer for Minorities
EQD | The Hang Seng Index May Go Higher

Trading Opportunities Targeting Potential ADR Discount Increases from Korea’s Short-Selling Ban

Given Korea’s blanket ban on short-selling, we should concentrate on the likelihood of these ADRs being significantly discounted compared to their underlying shares.
It should persist for an extended period, highlighting the importance of continuously monitoring ADR spreads over the next 2-3 months to seize the opportune entry timing.
Since all these carry single-stock futures, a flexible setup targeting this spread can be designed, ideally incorporating currency hedges.

TOPIX Inclusions: Who Is Ready (Nov 2023)

Quiddity’s “Who is Ready” series of insights aims to objectively identify names listed on the Tokyo Stock Exchange that are potential additions to the TOPIX Index in future.
Our main pre-event candidate CELSYS (3663 JP) has outperformed TOPIX by ~12.6% since 1 Sep (when it was highlighted) and 6 Nov 2023.
There are three TOPIX Inclusion events confirmed for the end of November and two other interesting pre-event names we are closely monitoring.

Sankyo (6417) – Second Go-Round for a BIG Buyback

Back in late September, Sankyo Co Ltd (6417 JP) announced a 10mm share buyback along with a new dividend policy. Only 4.22mm shares showed up to sell.
The largest holder – Exec Chair Busujima-san – sold 2.22mm shares under his own name and his company’s name. Hikari Tsushin, which had been selling in the market, didn’t participate.
Now Sankyo has launched another 10mm share ToSTNeT-3 buyback tomorrow (8 Nov) AM at ¥6,099/share. They may not complete. But they may continue buying later. They have oodles of cash.

Japan H1 Bank Earnings: Last Minute Update; Suruga Bank Reacts Well

I wrote Japan H1 Bank Earnings: Interest/Fees Up, Expenses/Credit Costs Down – Opportunity Abounds, Still last week mentioning the trends in guidance revisions.
Since then, five have reported H1. +20%, +53%, +23% vs guidance; +25.6%, and +28.2% vs Last Year. Eight more have added new guidance, weighted average H1 up 48%.
Four more report tomorrow, eight on Thurs, 43 on Friday. The Top 5 are all next Mon/Tues. Watch for comments about portfolio restructuring efforts in H2 as market yields rise.

Hollysys (HOLI US): Ascendent Capital Joins the Fray

Ascendent Capital has made a non-binding proposal for Hollysys Automation Technologies (HOLI US) at US$26.00 per share, a 4.0% premium to the MBO and Recco proposal of US$25.00 per share.
Ascendent has also become the largest shareholder by securing 13.69% of outstanding shares at an average price of A$20.84 per share. Ascendant is supportive of the special meeting request.
The Board has tried several delaying tactics, but the emergence of Ascendant ramps up the pressure on the Board to conduct a transparent sale process and address shareholder concerns.

Momentum Trading Opportunities Among Top 50 Stocks in KOSPI With Highest Short Interest Ratios

In this insight, we discuss near-term momentum trading opportunities among the top 50 stocks in KOSPI with highest short interest ratios.
Given the recent temporary ban on stock short selling in Korea, there is likely to be increased volatility in the stock market.
We have identified 10 companies in particular that have high short interest ratios, among the worst performing stocks YTD, but with strongest share price performance in the past two days.

CMIC Holdings (2309 JP): MBO Tender Offer at JPY2,650

CMIC Holdings (2309 JP) has recommended an MBO tender offer of JPY2,650 per share, a 55.9% premium to the undisturbed price (7 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 41.29% ownership ratio.
Irrevocables to accept represent a 23.29% ownership ratio. While the offer is light vs. peer multiples, the minimum acceptance condition requires a 35.1% minority acceptance rate, which is doable.

SSE50 Index Rebalance Preview: Five Potential Changes; Hygon Stands Out

With the review period complete, we see 9 stocks in inclusion zone and 10 in deletion zone. However, there can be a maximum of 5 changes at a review.
We estimate a one-way turnover of 4.7% at the December rebalance leading to a one-way trade of CNY 3.86bn. Index arb balances could increase the impact on the stocks.
Apart from being added to the SSE50 Index, Hygon Information Technology (688041 CH) could also be added to other local/global indices over the next few weeks and months.

Telefonica/Telefonica Deutschland Holding AG: Offer for Minorities

By Jesus Rodriguez Aguilar

Telefonica SA (TEF SM) surprised everyone with a €2.35/share voluntary cash offer for the minorities in Telefonica Deutschland Holding (O2D GR), 37.6% premium, 4.4x EV/Fwd EBITDA (vs.5.1x Telefonica), €1970 million value.
The premium is attractive, c.31% premium to median IBES consensus TP, so I believe the offer will succeed. There will be no additional acceptance period. Spread is +0.17%.
Telefonica will add 7% more leverage at a time it is seeking the opposite: on the cards are some sort of divestment of Virgin Media O2 or a dividend cut.

EQD | The Hang Seng Index May Go Higher

By Nico Rosti

The Hang Seng Index closed last week at 17664.12 (CC=+2), currently rallying this week, but there is a chance for a short-lived pullback (i.e. closing this week down).
The current global equities bounce should continue for the entire month of November: the HSI may continue rallying for +2 weeks (if it does not close down this week).
Price targets to watch for the end of the rally (i.e. shortable) are between 18300 and 18700.

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Nov 07

Daily Brief Event-Driven: Tencent (700 HK): Board Meets Next Week; In-Specie Dividend Candidates and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Tencent (700 HK): Board Meets Next Week; In-Specie Dividend Candidates
Block Deal Sale of HYBE by Netmarble
Bajaj Finance QIP – Very Well Flagged US$1bn Raising, past Deals Have Done Well
OreCorp/Silvercorp: 8th December Shareholder Vote
OreCorp (ORR AU): A Wide Spread Heading into the 8 December Vote

Tencent (700 HK): Board Meets Next Week; In-Specie Dividend Candidates

Tencent (700 HK) announced in-specie dividends of JD.com (9618 HK) (US$15bn+) in 2021 and Meituan (3690 HK) (US$20bn) in 2022.
With the Tencent (700 HK) Board meeting on 15 November to approve Q3 results and considering the payment of a dividend, the pattern could repeat this year.
Tencent (700 HK) owns stakes of US$1bn+ in 10 listed companies. We take a look at the stocks that could be next in line to be paid as in-specie dividends.

Block Deal Sale of HYBE by Netmarble

After the market close on 6 November, Netmarble announced that it will sell 2.5 million shares of HYBE which represents 569 billion won in amount at current price.
The actual block deal amount is likely to be less than 569 billion won as there will likely be a block deal discount rate.
We would avoid this deal, mainly because we think HYBE is overvalued relative to its peers.

Bajaj Finance QIP – Very Well Flagged US$1bn Raising, past Deals Have Done Well

By Sumeet Singh

Bajaj Finance Ltd (BAF IN) , one of India’s largest NBFCs, aims to raise around US$1bn via a QIP.
Bajaj Finance is an NBFC offering auto, consumer and home loans, along with other products as well.
In this note, we run the deal through our ECM framework and talk about the deal dynamics.

OreCorp/Silvercorp: 8th December Shareholder Vote

Back on the 6 August, Western Australian-based miner OreCorp Ltd (ORR AU) signed a Scheme Implementation Deed with Canada’s Silvercorp Metals (SVM CN).
OreCorp shareholders are offered A$0.15 in cash and 0.0967 new Silvercorp shares – or an implied value of A$0.60 – for each OreCorp share held.
The Scheme Booklet is out with a shareholder vote on the 8 December. Implementation is the 22 December.

OreCorp (ORR AU): A Wide Spread Heading into the 8 December Vote

The Orecorp Ltd (ORR AU) IE considers Silvercorp Metals (SVM US)’s A$0.15 cash per share and 0.0967 SVM shares per ORR share offer fair and reasonable.
The offer is subject to the Tanzanian Fair Competition Commission and shareholder approval. The offer is attractive compared to the adjusted exchange ratios and historical prices.
While the offer has suffered from the steep SVM share price decline, there has been no visible dissent from major shareholders. At the last close, the gross spread was 12.1%.

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Nov 06

Daily Brief Event-Driven: Korea Short Sell Ban: Background and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Korea Short Sell Ban: Background, Manipulation, Holdings, Flows, Short Interest, Implications
Full Transcript of Korea FSC Briefing on Sudden Short-Selling Ban, Including Key Trading Insights
Lee Family to Sell 2.6 Trillion Won in Samsung Companies to Pay for Inheritance Taxes
Chindata (CD US): Maximum Dissent Condition in Focus as Oasis Builds a Stake
Descente (8114) : Itochu Still Buying and ANTA Gives You Earnings Hints
EQD | KOSPI 200 SHORT-SELLING BAN: Upward Push and Pullbacks
A/H Premium Tracker (To 3 Nov): Volatility Off, Spreads Jumpy, Short Sellers a NatSec Concern?
Samsung Founder Family’s Pre-Announced Block Deals: Contract Terms & Fresh Contextual Conditions
Merger Arb Mondays (06 Nov) – Haitong Intl, NWS, Poly Culture, Eoflow, Origin, Azure, Tietto
HK Connect SOUTHBOUND (To 3 Nov 23); CNOOC & China Mobile AGAIN See Outflows, SMIC & Xiaomi See Buys

Korea Short Sell Ban: Background, Manipulation, Holdings, Flows, Short Interest, Implications

Korea banned all short selling in March 2020 and resumed short selling only on KOSPI 200 and KOSDAQ 150 index constituents in May 2021.
News reports indicate that there could be another short sell ban as soon as the coming week. Indications are that the ban could last 6 months.
There are many implications of a total short sell ban including futures backwardation, market manipulation, and no emerging to developed market promotion.

Full Transcript of Korea FSC Briefing on Sudden Short-Selling Ban, Including Key Trading Insights

There seems to be no immediate requirement to close existing contracts. However, even the chairman of the Financial Services Commission was unable to offer a definitive answer.
The comprehensive investigation and prohibition of the customary naked short selling could lead to a rapid decline in overall market liquidity.
The first is the short-term view, focusing on futures backwardation, and the second is the medium to long-term perspective, examining how the overall market liquidity decline will affect market flows.

Lee Family to Sell 2.6 Trillion Won in Samsung Companies to Pay for Inheritance Taxes

Lee family plans to sell additional 2.6 trillion won worth of Samsung Group companies as part of their fourth installment of inheritance taxes.
This inheritance tax share sale is likely to have a negative impact on Samsung Electronics, Samsung C&T, Samsung SDS, and Samsung Life Insurance.
This may be just a coincidence but the regulators announced today a temporary ban on stock short selling which should help the Lee family to unload their shares.

Chindata (CD US): Maximum Dissent Condition in Focus as Oasis Builds a Stake

Chindata Group (CD US)’s US$8.60 per ADS offer from Bain Capital is conditional on dissenting shareholders representing less than 12% of outstanding shares.
Oasis Management, an activist fund, recently disclosed a shareholding representing 65.9 million ordinary shares, 8.99% of outstanding shares and 1.24% of voting interest.
Precedent transactions where the dissent condition was exceeded suggest two possibilities – the offeror waives the condition or persuades sufficient shareholders to withdraw as dissenters.

Descente (8114) : Itochu Still Buying and ANTA Gives You Earnings Hints

Descente Ltd (8114 JP) saw Itochu report it had continued its streak of consecutive days of buying, extending it to 115. Now they own 44.1% of voting rights.
ANTA gave hints to the progress of Descente China in the Interim Results, and Q3 Operational Update. Descente analysts are 20% ahead of guidance, but they’re probably low still.
Descente reports Q2 tomorrow. I expect the numbers and presentation to surprise at the Net Profit level. I expect a forecast revision.

EQD | KOSPI 200 SHORT-SELLING BAN: Upward Push and Pullbacks

By Nico Rosti

Banning short-selling for stocks will provide some propulsion to the KOSPI 200 INDEX but inevitably there will be pullbacks when strong resistance areas are reached.
The index is joining a wide global equities bounce, it is not recommended to go SHORT soon. There is a chance it may pullback briefly this week (buy the dip?)
Our models say the index can rise from 2 to 4 weeks, before reversing: resistance will be met at 320, 328 and (hard to reach) 349.

A/H Premium Tracker (To 3 Nov): Volatility Off, Spreads Jumpy, Short Sellers a NatSec Concern?

The New and Better (10 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.
Absolutely STONKING performance this past week – +1.62% Friday to Friday across 42 trades. Positive performance in every sector. Portfolio at new high. Southbound inflows. BigCapHighDiv SOE outflows.
Short sales this week now need 100% in the account for hedge funds. And the MSS claims some are short-selling or talking bearishly on stocks for political reasons.

Samsung Founder Family’s Pre-Announced Block Deals: Contract Terms & Fresh Contextual Conditions

Considering year-end dividends, it appears likely that the trading timing might extend beyond this year. In the previous case, the trade execution timing was one month before the contract expired.
Short selling is prohibited. However, all four companies offer single-stock futures, which provide instruments for proactive positioning. Nevertheless, aspects to consider are likely to increase regarding trading convenience and liquidity.
The potential for inadequate liquidity might increase the discounts for these deals, potentially offering us fresh trading opportunities. We should proactively prepare trading setups that consider these contextual conditions.

Merger Arb Mondays (06 Nov) – Haitong Intl, NWS, Poly Culture, Eoflow, Origin, Azure, Tietto

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 – 111 Inc (YI US), Eoflow (294090 KS), Hollysys Automation Technologies (HOLI US), Origin Energy (ORG AU), JSR Corp (4185 JP), Orecorp Ltd (ORR AU), Lithium Power.
Lowest spreads – Azure Minerals (AZS AU), Pact Group Holdings (PGH AU), Chindata Group (CD US), Tietto Minerals Ltd (TIE AU), T&K Toka Co Ltd (4636 JP), Allkem.

HK Connect SOUTHBOUND (To 3 Nov 23); CNOOC & China Mobile AGAIN See Outflows, SMIC & Xiaomi See Buys

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 four weeks clearly indicate a momentum move. The top net sells are all down. The top buys are all up.
Xiaomi Corp (1810 HK) and Semiconductor Manufacturing International Corp (SMIC) (981 HK) were the top net SOUTHBOUND inflows as SOUTHBOUND bought HK$8.515bn this past week.

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Nov 05

Daily Brief Event-Driven: Trading Opportunities from Korea’s Sudden Short Selling Ban & Resulting Futures Backwardation and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Trading Opportunities from Korea’s Sudden Short Selling Ban & Resulting Futures Backwardation
Last Week in Event SPACE: Hokuhoku, Origin Energy, KDDI, BoJ
Daito Trust Construction (1878) – Big Buyback, Dense Register, 120% Payout This Year
EQD | Nikkei 225 (NKY)’s November Rally: How Far Can It GO?
(Mostly) Asia-Pac Weekly Risk Arb Wrap: Tietto Teraoka Seisakusho, Symbio, Celltrion Health, EOFlow
Index Rebalance & ETF Flow Recap: NEXT50, SET50, L&F, Onewo, Celltrion, AMFI

Trading Opportunities from Korea’s Sudden Short Selling Ban & Resulting Futures Backwardation

We should consider the complete prohibition of short selling for the next six months as practically finalized.
Following the individual stock short selling ban, both position hedging and short demand will inevitably shift to the futures market, consequently inducing unavoidable immediate backwardation.
We should design a setup that not only actively seizes sell arbitrage opportunities but also effectively capitalizes on the downward price pressure stemming from spot selling.

Last Week in Event SPACE: Hokuhoku, Origin Energy, KDDI, BoJ

If you are still long the Financial Group (8377 JP) from before, stay long.If you sold Hokuhoku from before, be long again, and buy on weakness
Disaster for arb players as AusSuper rewrites the record books as an investor class and shoots down Brookfield’s sweetened Offer for Origin Energy (ORG AU).
Kyocera (6971 JP) announced Q2 results and lowered its full-year forecast. Then the CEO said it was “reconsidering” what to do with KDDI (9433 JP) shares (after an AGM disaster).

Daito Trust Construction (1878) – Big Buyback, Dense Register, 120% Payout This Year

Daito Trust last week announced H1 earnings, its 50% dividend payout ratio, and a ¥50bn stock buyback which results in a shareholder payout ratio of ~120% over the next year.
This should help to keep ROE high, and as it is a clear distribution of surplus, it should help keep the multiple up.
It is worth looking at shareholder structure to see how this buyback will be taken.

EQD | Nikkei 225 (NKY)’s November Rally: How Far Can It GO?

By Nico Rosti

The Nikkei closed the month of October down, 4 months down in a row (CC=-4), very OVERSOLD MONTHLY. The 30600 support indicated in our last MONTHLY insight did hold somehow.
We think the Nikkei could continue to rally in November, but this explosive, fast rally, at one point will have to retrace back, before it can continue up.
The index could rally for 2 months, into December. The target prices for the end of the rally are near 34000.

(Mostly) Asia-Pac Weekly Risk Arb Wrap: Tietto Teraoka Seisakusho, Symbio, Celltrion Health, EOFlow

I tally 40 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
Two new deal was discussed on Smartkarma this week: Zhaojin Mining Industry H (1818 HK)‘s tilt for Tietto Minerals Ltd (TIE AU); and Teraoka Seisakusho (4987 JP)‘s MBO.
Key updates took place for: Symbio Holdings (SYM AU), Lansen Pharmaceutical Holdings Co, Ltd. (503 HK), Celltrion Healthcare (091990 KS), and EOFlow (294090 KS).

Index Rebalance & ETF Flow Recap: NEXT50, SET50, L&F, Onewo, Celltrion, AMFI

There were a bunch of indices where the review period ended last week. The changes will be announced this month and implemented in December.
Emerald Resources Nl (EMR AU) replaced Invocare Ltd (IVC AU) in the S&P/ASX 200 (AS51 INDEX) at the close on Friday.
There were large outflows from mainland China listed ETFs during the week. Outflows from iShares Emerging Markets (EEM US) continued for another week.

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Nov 04

Daily Brief Event-Driven: Exploring Fresh Flow Trading Prospects for SK Square: Targeting Exclusion from KOSPI 200 IT and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Exploring Fresh Flow Trading Prospects for SK Square: Targeting Exclusion from KOSPI 200 IT
Start of Tender Offer

Exploring Fresh Flow Trading Prospects for SK Square: Targeting Exclusion from KOSPI 200 IT

KRX did not acknowledge any business relevance between SK Square and the Semicon industry, leading to its exclusion from the KRX Semicon after the GICS change.
We should consider the strong possibility that this same approach will be applied in the upcoming December KOSPI 200 IT rebalancing.
If we observe a somewhat unusual downward trend in SK Square’s price from the 15th, this could be seen as a hint foretelling the announcement of SK Square’s exclusion.

Start of Tender Offer

By Jesus Rodriguez Aguilar

The $26.00/share cash offer of Thermo Fisher Scientific (TMO UN) for Swedish Olink Holding (OLK US) started on 31 October. The 74% premium reflects that high-growth, positive adjusted EBITDA targets are rare.
The offer values Olink at ~12.2x EV/NTM Fwd revenue vs. 6.4x median of peers. Irrevocables total 66%, but the minimum acceptance condition requires acceptances from a high 70.6% of float.
Barring any unforeseen circumstances, such as regulatory action, I anticipate the deal closing and set my TP at $26/share. Gross spread is 4.81%.

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Nov 03

Daily Brief Event-Driven: Origin: Brookfield Bumps. AustralianSuper Say Meh. and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Origin: Brookfield Bumps. AustralianSuper Say Meh.
Celltrion Merger Update: Limits Lifted
Origin Energy (ORG AU): AusSuper Wreaks Havoc on Brookfield/EIG’s Final Offer
Kyocera (6971) And Their $10bn KDDI Stake – Did They Get CorpGov Religion?
Quiddity HSTECH Dec 23 Flow Expectations: US$512mn One-Way Flows if the Expected Change Takes Place
Quiddity HSCEI Dec 23 Rebalance: Zhongsheng Vs China Grand Pair Interesting if Deletion Is Confirmed

Origin: Brookfield Bumps. AustralianSuper Say Meh.

On the 31st October, AustralianSuper (with 13.67% of shares out and Origin Energy (ORG AU)‘s largest shareholder) argued the Brookfield/EIG-backed Consortium Offer remained substantially below its estimate of fair value.
Brookfield/EIG have now increased their Offer by 8% to $9.53/share from $8.81/share, which now comprises cash components of A$6.59/share and US$1.86/share. A consideration-reducing fully-franked dividend of A$0.39/share is expected.
The Offer is declared “best and final.” It is above the top-end of the IE’s valuation range. AustralianSuper should accept the revised terms. But they say no.

Celltrion Merger Update: Limits Lifted

Back on the 17 August, biopharmaceuticals developer and producer Celltrion Inc (068270 KS) announced a merger with Celltrion Healthcare (091990 KS).
On October 23rd, shareholders approved the merger. The appraisal rights exercise period commenced on the 23 October and ends on November 13. 28th December is the merger’s effective date.
Initially, the stock purchase rights limit was set at 1₩tn; however Celltrion Group’s founder/Chairman Seo Jung-jin has removed this limit. That takes care of NPS, which opposes the merger.

Origin Energy (ORG AU): AusSuper Wreaks Havoc on Brookfield/EIG’s Final Offer

Origin Energy (ORG AU) has disclosed a best and final offer from Brookfield/EIG at A$6.59 and US$1.86 per share, which implies A$9.53 per share, 8.1% higher than the previous offer.
AusSuper will vote against the final offer. Taking advantage of the share price dip, AusSuper is said to have further increased its shareholding to 14.98% of outstanding shares.
The scheme will likely fail as a minority YES vote turnout of 88% is required to pass. Brookfield/EIG could return with an off-market takeover offer, but it also faces issues.

Kyocera (6971) And Their $10bn KDDI Stake – Did They Get CorpGov Religion?

Yesterday, Kyocera Corp (6971 JP) announced Q2 results and lowered its full-year forecast. Then the CEO said it was “reconsidering” what to do with KDDI shares (after an AGM disaster).
The company had already planned to borrow ¥500bn against the KDDI stake to return capital to shareholders. That was in the price 5+ months ago.
The new hope is that Kyocera just got Corporate Governance Religion. I have my doubts, and even if it did, you have to look carefully at their ambitious plans.

Quiddity HSTECH Dec 23 Flow Expectations: US$512mn One-Way Flows if the Expected Change Takes Place

The HSTECH Index tracks the performance of the top 30 technology companies listed in Hong Kong that have high business exposure to certain technology themes.
The index changes and the indicative component weights for the December 2023 index review will be published in a couple of weeks.
In this insight, we take a look at the potential index changes and the resultant capping flows for the HSTECH Index in December 2023.

Quiddity HSCEI Dec 23 Rebalance: Zhongsheng Vs China Grand Pair Interesting if Deletion Is Confirmed

The HSCEI serves as a benchmark to reflect the overall performance of the top 50 “Mainland China” Securities listed in Hong Kong.
In a couple of weeks, the official index changes and the indicative weights for the final index members for the December 2023 rebalance will be announced.
In this insight, we take a look at the potential index changes and the resultant capping flows for HSCEI in December 2023.

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Nov 02

Daily Brief Event-Driven: Celltrion Merger: Appraisal Rights & Passive Flows and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Celltrion Merger: Appraisal Rights & Passive Flows
Japan H1 Bank Earnings: Interest/Fees Up, Expenses/Credit Costs Down – Opportunity Abounds, Still
Symbio Backs ABB’s Reduced Terms
AMFI Stock Reclassification Preview (Dec 2023): HUGE Outperformance as Active and Passive Meet
Symbio (SYM AU): Aussie Broadband’s Lower Binding Proposal

Celltrion Merger: Appraisal Rights & Passive Flows

The Appraisal rights exercise period ends on 13 November. If the NPS and other large shareholders exercise their rights in Celltrion Inc (068270 KS), the merger could be in trouble.
Both stocks are trading close to their exercise price and could be supported due to the companies buying back their shares.
There will be passive flows from local and global trackers and there does not appear to be pre-positioning. That is likely due to the risk of potential merger cancellation.

Japan H1 Bank Earnings: Interest/Fees Up, Expenses/Credit Costs Down – Opportunity Abounds, Still

40% of Banks outside the Top 7 (none of which offered H1 guidance) in the TOPIX Banks Index have now changed H1 guidance or reported H1. 2 reported both up.
92% of the others have revised up H1 net income guidance a weighted average of 47%. Net Interest Income, Corporate fees/comms are up, expenses and credit costs are down.
Big tables with data, reasons for guidance changes, and buyback history of each presented below.

Symbio Backs ABB’s Reduced Terms

Back on the 22 September, Superloop Ltd (SLC AU) lobbed a best and final cash/scrip NBIO for Symbio Holdings (SYM AU) with an implied price of A$2.85/share.
Aussie Broadband Pty Ltd (ABB AU) then tabled a cash/scrip Offer, with an implied price of A$3.151/share. Symbio was supportive, if terms were firmed. Superloop’s Offer subsequently lapsed.
ABB returned with a reduced cash/scrip Offer of A$2.99-$3.04/share. Symbio has unanimously recommended the Offer (at A$3.011/share) and they entered into a Scheme agreement. A partially/fully franked dividend is permitted.

AMFI Stock Reclassification Preview (Dec 2023): HUGE Outperformance as Active and Passive Meet

We see 8 stocks moving from MidCap to LargeCap, 8 stocks moving from LargeCap to MidCap, 13 stocks from SmallCap to MidCap, and 14 stocks from MidCap to SmallCap.
Some stocks are expected to be inclusions to global indices later this month while others are potential NIFTY Index and/or Nifty Next 50 Index changes in March.
On average, the upward migrating stocks have outperformed the downward migrating stocks by close to 100% over the last 8 months. The passive flow can be used as an exit.

Symbio (SYM AU): Aussie Broadband’s Lower Binding Proposal

Symbio Holdings (SYM AU)‘s binding proposal with Aussie Broadband Pty Ltd (ABB AU) is at A$2.26 cash and 0.192 ABB shares per SYM share, 3.2% lower than its earlier proposal.
The key condition is shareholder approval. The scheme booklet will be despatched on 22 December, with a scheme meeting in early February 2024.
While the offer is light compared to long-term historical prices and multiples, there seem to be no signs of dissent from institutional or retail investors.

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Nov 01

Daily Brief Event-Driven: March 2024 Nikkei 225 Rebal – Socionext and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

March 2024 Nikkei 225 Rebal – Socionext, Disco and a Consumer Goods Stock (Ryohin Keikaku?) To ADD
S&P/ASX 200 Index Adhoc Rebalance: Emerald Resources (EMR) To Replace Invocare (IVC)
Concerns About A Major Accounting Fraud at Kakao Mobility
Ueda’s BOJ Looking Like Ueda’s Pre-BOJ Opinions, but Normalisation Is “A Work in Progress.”
End of Mandatory Lock-Up Periods for 48 Companies in Korea in November 2023
NIFTY NEXT50 Index Rebalance Preview: 6 Changes & Big Turnover
(Mostly) Asia M&A, Oct 2023: Haitong, Azure, Hollysys, Aeon, Teraoka, Tietto, Lithium Power
Back in Telefonica

March 2024 Nikkei 225 Rebal – Socionext, Disco and a Consumer Goods Stock (Ryohin Keikaku?) To ADD

In March 2024 Nikkei 225 Rebal – Look for Zozo, Ryohin Keikaku, and Maybe a Socionext Split I suggested Socionext (6526 JP) needed a stock split to get in.
Today after the close, Socionext reported H1, guided up full-year earnings (still too conservative), raised its div, and announced a 5:1 stock split for Jan1 2024.
DISCO Corp (6146 JP) is now likely to be a top 75, which leaves the question of which Consumer Goods stock would likely be added.

S&P/ASX 200 Index Adhoc Rebalance: Emerald Resources (EMR) To Replace Invocare (IVC)

Shareholders have approved Invocare Ltd (IVC AU)‘s acquisition by TPG and IVC is expected to stop trading after the close on 3 November.
Invocare Ltd (IVC AU) will be replaced by Emerald Resources Nl (EMR AU) in the S&P/ASX 200 (AS51 INDEX) at the close on 3 November.
Boss Resources (BOE AU) misses out this time but should be added to the index late November or at the regular rebalance in December.

Concerns About A Major Accounting Fraud at Kakao Mobility

It was reported in numerous local media in Korea that FSS is investigating Kakao Mobility for a potential accounting fraud.
There are suspicions that Kakao Mobility may have artificially inflated its sales from 2020 to 2023 to enhance the value of the company prior to its IPO listing.
Given that the regulators are unlikely to make a final decision on this matter until next year, this is likely to be negative on both Kakao Mobility and Kakao Corp.

Ueda’s BOJ Looking Like Ueda’s Pre-BOJ Opinions, but Normalisation Is “A Work in Progress.”

In July the BOJ lifted the YCC range to allow flexibility at 0.5% and a red line at 1.0%. Today it moved the “reference” to 1.0% with no red line.
This allows 10yr yields to move higher, but the Board’s insistence on negative rates and YCC staying in place tells you steeper for longer makes shorting long JGBs tough.
The move today helps encourage the market mechanism to take control of dampening volatility, the same way it did when the BOJ stepped away from ETF buying in 2021.

End of Mandatory Lock-Up Periods for 48 Companies in Korea in November 2023

We discuss the end of the mandatory lock-up periods for 48 stocks in Korea in November 2023, among which 6 are in KOSPI and 42 are in KOSDAQ.
These 48 stocks on average could be subject to further selling pressures in November and could underperform relative to the market.
Among these 48 stocks, top five market cap stocks include Doosan Robotics, Fadu, CanariaBio, Enchem, and Gigavis.

NIFTY NEXT50 Index Rebalance Preview: 6 Changes & Big Turnover

Halfway through the review period, we see 6 potential changes for the NSE Nifty Next 50 Index (NIFTYJR INDEX) using the current index methodology.
Estimated one-way turnover is 15.26% and that will result in a one-way trade of INR 24bn. There will be more than 2x ADV to sell on nearly all deletes.
There is a possibility of an index methodology change, but no news for the last 4 months could indicate pushback from users or more stocks added to the F&O market.

(Mostly) Asia M&A, Oct 2023: Haitong, Azure, Hollysys, Aeon, Teraoka, Tietto, Lithium Power

For the month of October 2023, 7 new deals (firm and non-binding) were discussed on Smartkarma with an overall announced deal size of ~US$4bn.
The average premium for the new deals announced (or first discussed) in October was 65%. The average YTD is 37% (85 deals).
This compares to the average premium for all deals in 2022 (106 deals), 2021 (165 deals), 2020 (158 deals), and 2019 (145 deals) of 41%, 33%, 31%, and 31% respectively.

Back in Telefonica

By Jesus Rodriguez Aguilar

The public holding company SEPI, controlled by the Spanish Treasury, has confirmed to the CNMV that it is studying the possibility of acquiring a stake in Telefonica SA (TEF SM).
Market speculates with a 5% stake to counterbalance the current 4.9% stake of STC (which could execute an option to acquire another 5% pending Government authorisation).
At current market prices, it is equivalent to 22.04 trading sessions. Q3 results and Capital Markets Day, the first major strategic update in years, will take place on 8 November.

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Oct 31

Daily Brief Event-Driven: StubWorld’s: Amorepacific’s Multi-Year Lows and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

StubWorld’s: Amorepacific’s Multi-Year Lows
BIG Nippon Electric Glass (5214) Buyback, Possibly Offset by Cross-Holder Selling
Offensively Low-Priced MBO for Teraoka Seisakusho (4987) – Yet Another SmallCap Governance Disaster
SET50 Index Rebalance Preview: One High Probability Change; Another One Is Close
Quiddity JPX-Nikkei 400 Rebal 2024: End-Oct 2023
Tietto (TIE AU): Zhaojin Makes An Offer
Quiddity A/H Premium Tracker (To Oct27): Volatility Off, Spreads Still Volatile. GreatWall Q3!
Kum Yang – Submits An Agenda to Expand Issuance Limit of CB and BW to 10 Trillion Won
Tietto Minerals (TIE AU): Zhaojin’s Conditional Off-Market Takeover Offer
Mankind Pharma Lock-Up – A US$1.1bn+ Lockup Release

StubWorld’s: Amorepacific’s Multi-Year Lows

Both the implied stub for Amorepacific Group (002790 KS) and the simple ratio (Group/Amorepacific Corp (090430 KS)) are around lifetime low levels.
Preceding my comments on Amorepacific 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%.

BIG Nippon Electric Glass (5214) Buyback, Possibly Offset by Cross-Holder Selling

Nippon Electric Glass (5214 JP) is going through a rebuilding year. Lots of restructuring expenses and I expect there will be more.
The company today announced the outline of its next Mid-Term Management Plan for the 5 years to 2028. It will announce details in early Feb 2024 with results.
In that, there is ¥50bn of buybacks through Dec2026, of which ¥20bn will be made in the next 4mos. That is about 11-14% of ADV assuming the price jumps.

Offensively Low-Priced MBO for Teraoka Seisakusho (4987) – Yet Another SmallCap Governance Disaster

A small specialty adhesives maker – Teraoka Seisakusho (4987 JP) has had an MBO proposed and approved. At 0.54x book. NetCash+securities+2.5mos of net A/R+inventory = 99% of Takeover Market Cap.
Borrow 2x EBITDA, pay out the cash and securities, and this is being done at <0.3x remaining book. The takeover is 100+% bank funded. It’s ridiculous.
For this to get stopped, however, someone has to go activist on a smallcap where retail owns the entire float and friends and family own 55% to start.

SET50 Index Rebalance Preview: One High Probability Change; Another One Is Close

Two thirds of the way through the review period, we see one change for the SET 50 Index in December with KCE Electronics (KCE TB) replacing Ngern Tid Lor (TIDLOR TB).
There is one close change where I-TAIL (ITC TB) could replace Srisawad Power 1979 (SAWAD TB) in the index.
Delta Electronics Thailand (DELTA TB) is unlikely to be deleted while Berli Jucker (BJC TB) fails liquidity and is unlikely to be added.

Quiddity JPX-Nikkei 400 Rebal 2024: End-Oct 2023

JPX-Nikkei 400 is composed of common stocks listed on the Tokyo Stock Exchange. It is a free-float-adjusted market-value-weighted (capped) index composed of 400 constituents.
A periodic review is conducted by the Index providers, the JPX Group and Nikkei Inc, in August every year. We look at the potential forward inclusions and removals every month.
Below is a look at potential Inclusions and Removals for the JPX-Nikkei 400 Rebalance to come in August 2024 based on trading data as of end-October 2023.

Tietto (TIE AU): Zhaojin Makes An Offer

SOE-Backed Zhaojin Mining Industry H (1818 HK), China’s fourth largest integrated gold producer, has tabled a non-binding Offer for Aussie-listed West African gold miner Tietto Minerals Ltd (TIE AU).
The A$0.58/share cash Offer is a 36% premium to undisturbed. Zhaojin is seeking 50.1% of shares out, with 7.02% already held.
Conditions include a raft of PRC and Côte d’Ivoire regulatory approvals. None of these should face opposition.

Quiddity A/H Premium Tracker (To Oct27): Volatility Off, Spreads Still Volatile. GreatWall Q3!

The New and Better (10 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.
Last week the portfolio bounced back, erasing the previous week’s losses. Southbound continues to see net inflows and this week all H/A Pair sectors saw Hs outperform except Energy.
High-Div SOEs continue to be weak. Banks, Pharma, Industrials, and Utilities spreads continue to be Very Volatile. Quiddity Favourite Great Wall Motor (2333 HK) up 7% after Q3 results Friday.

Kum Yang – Submits An Agenda to Expand Issuance Limit of CB and BW to 10 Trillion Won

On 30 October, Kum Yang announced that it has submitted an agenda to expand the issuance limit of CB and BW to 10 trillion won.
This increase in the limit of CB and BW issuance to 10 trillion won would mean potential capital raise through these methods that are nearly 2x its entire market cap.
Kum Yang may be trying to raise large amount of capital (several trillion won) which could result in significant dilution risk for the existing shareholders.

Tietto Minerals (TIE AU): Zhaojin’s Conditional Off-Market Takeover Offer