Event-Driven

Hankyung exclusively reported that the Korean regulators were considering abolishing the foreign ownership limit. This morning, the Ministry of Economy and Finance released a statement that this report is untrue.
Nevertheless, circumstantially, given the current government’s all-out effort to make it to MSCI Developed Market status, there is a high possibility that it will resurface not too far from now.
Four out of the 33 foreign ownership-restricted stocks will likely be immediately affected: SKT, KT, and Korea Gas (MSCI inclusion) and SBS (flow improvement).

Australian Clinical Labs (ACL) Lowballs an All-Stock Offer for Healius (HLS)

Australian Clinical Labs (ACL AU) has announced its intention to make an off-market takeover for Healius (HLS AU) offering 0.74 ACL shares for each Healius share.
The offer represents a nil-premium merger and if successful will result in current Healius (HLS AU) shareholders owning 68% of the merged company.
The offer is a big discount to longer-term VWAPs. We don’t expect shareholders will tender and Australian Clinical Labs (ACL AU) will need to sweeten the offer.

MSCI Korea May QCIR: Potential Changes, Impact, Positioning & Short Interest

We currently forecast 2 potential inclusions and 3 potential deletions for the MSCI Korea Index at the May QCIR. That will change over the next few weeks till cutoff date.
Passive trackers are estimated to buy between 0.6-3.3 days of ADV on the potential inclusions while selling between 6.9-14.2 days of ADV on the potential deletions.
Short interest on the potential deletions has moved significantly higher in the last few weeks and there will be pre-positioning on the stocks.

Healius (HLS AU): Australian Clinical Labs (ACL AU)’s Nil-Premium Merger Needs a Rethink

Australian Clinical Labs (ACL AU) has launched an all-scrip off-market takeover offer for Healius (HLS AU) at 0.74 ACL shares for each HLS share.
The offer is saddled with several onerous conditions which disproportionately shift the risk to HLS shareholders. The offer is long-dated as ACCC approval is expected to take six months.
The lack of premium and unattractive deal metrics suggests a high probability of Board rejection. Nevertheless, ACL’s bid underscores HLS’s beaten-down valuation. Expect improved terms.

Healius: Australian Clinical Labs’ Opportunistic Merger Proposal

Australian Clinical Labs (ACL AU) has announced a merger proposal for Healius (HLS AU), the completion of which would create Australia’s largest pathology provider.
ACL is offering 0.74 new shares for each share in Healius. Healius shareholders will hold 68% of the enlarged entity, with ACL shareholders holding 32%.
The Offer is conditional on a 90% minimum acceptance condition and regulatory approvals (ACCC and FIRB). Healius’ board is evaluating the Offer.

Essential Metals (ESS AU): Tianqi/IGO JV Scheme Meeting on 20 April

The IE considers Tianqi Lithium (9696 HK)/IGO Ltd (IGO AU) JV’s A$0.50 offer for Essential Metals (ESS AU) to be fair and reasonable as it is higher than its A$0.283-0.468 valuation.
Odey, the recent substantial shareholder, hoped for a competing proposal which has not materialised. On 10 March, Odey sold down 21% of its holding at A$0.48 per share.
Barring an unlikely competing proposal, this is done. At the last close price and for the 5 May payment, the gross and annualised spread is 3.1% and 28.4%, respectively.

Bionote Lock-Up – Uncertainty on the Horizon, Likely to See Some Selling Pressure

By Clarence Chu

Bionote (377740 KS) was listed on 22nd Dec 2023, when it raised US$73m in its downsized Korean IPO. Its three-month lockup will expire on 21st Mar 23.
Bionote is an integrated producer of diagnostics test products and biocontent products. Based on its unique recombinant antigen and antibody manufacturing technology, the firm researches and develops diagnostic reagent products.
Coming up for three-month lockup expiry are the firm’s three pre-IPO investors, together with Gunwoo Ha (ex-CEO). The three pre-IPO investors had earlier trimmed their respective stakes in the IPO.

Quiddity Leaderboard for UK F100/250 June 2023: Mediclinic Replacement Candidates Have High Impact

In this insight, we take a look at the potential index changes for F100 and F250 in the run up to the June 2023 Rebalance.
Based on latest prices, there are no changes expected for F100 while there could be up to four changes in F250 between now and the June 2023 Rebalance
This includes the potential intra-review replacement of F250 member Mediclinic International (MDC LN) in the F250 index.

Essential Metals (ESS AU)’s Scheme: Shareholders To Vote On 20 April. MinRes In The Wings?

Back on the 9th Jan, small lithium player Essential Metals (ESS AU) entered into a Scheme with Tianqi Lithium JV, comprising Tianqi (9696 HK) (51%) and IGO (IGO AU) (49%).
The Scheme Booklet is now out, with a Scheme Meeting tabled for the 20 April. The Independent Expert reckons the Scheme Consideration is fair. FIRB is no longer required.
This is done and has traded tight from the onset.

Potential Inclusions & Exclusions in KOSDAQ 150 Rebalance in May 2023

In this insight, we discuss the potential inclusions and exclusions of the upcoming KOSDAQ 150 rebalance in May 2023.
The next round of KOSDAQ 150 rebalance will be announced in May and it will be effective as of end of May 2023.
Typically, the potential inclusions and exclusions to KOSDAQ 150 make their biggest moves in the one to three months prior to the rebalance announcements.

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Mar 20

Daily Brief Event-Driven: Meituan (3690 HK) – US$16bn of Shares To Be Delivered This Week and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Meituan (3690 HK) – US$16bn of Shares To Be Delivered This Week
Golden Energy (GER SP): Revised Offer Is Still Not Good Enough
Shorting Kakao Pay on K200 Sector Index Passive Outflow Due to GICS Change on June 8
Merger Arb Mondays (20 Mar) – Toshiba, AAG Energy, Tyro, Newcrest, InvoCare, Pushpay, Golden Energy
Meritz Financial Group: A Large Share Buyback Amid Global Financials Uncertainties
Korean Government Reviews Rules to Ease Foreign Ownership Limits
SSE50 Index Rebalance Preview: BIG Outperformance Over the Last Month
Golden Energy: Offer Bumped. Still Insulting
ChiNext/ChiNext50 Index Rebalance Preview: Overlapping Stocks & Recent Outperformance

Meituan (3690 HK) – US$16bn of Shares To Be Delivered This Week

In early 2022, Tencent (700 HK) made clear it was on a divestment path – disposing of investments able to support themselves – possibly “obliged” after 2021’s China internet mess.
In August, Reuters suggested Meituan (3690 HK) was next. Tencent denied it, but in November with Q3 earnings, announced a January 2023 distribution with March 2023 settlement.
US$16bn of Meituan shares get delivered on 24 March 2023 – this Friday. That’s a lot. But this time is different than last time.

Golden Energy (GER SP): Revised Offer Is Still Not Good Enough

Golden Energy & Resources (GER SP)‘s revised proposal from the Widjaja family – distribution proposal (1.3936 GEMS share per share or IDR6,500 per GEMS share) and the delisting proposal (S$0.181).
The revised offer addresses the issue around the previous offer’s unattractive distribution cash alternative and unfavourable FX. However, the revised offer remains light but is not declared final.
The revised offer fails to address the issue concerning the decline in Golden Energy Mines (GEMS IJ) share price and the value of Stanmore Coal (SMR AU) stake.

Shorting Kakao Pay on K200 Sector Index Passive Outflow Due to GICS Change on June 8

Kakao Pay’s GICS sector movement from IT to FINANCIALS creates flow trading opportunities due to the subsequent transfer between KOSPI 200’s sector sub-indices.
An outflow of ₩24.6B or 410K shares will occur. This is 0.6x ADTV. Given that the recent trading volume has further decreased, the actual impact will likely exceed 1.0x DTV.
It will be a concentrated flow in a single trading day by a single ETF, which gives us plenty of reasons for preemptively designing a short position targeting this.

Merger Arb Mondays (20 Mar) – Toshiba, AAG Energy, Tyro, Newcrest, InvoCare, Pushpay, Golden Energy

We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
Highest spreads – 21Vianet Group (VNET US), 111 Inc (YI US), Alliance Aviation Services (AQZ AU), Genesis Minerals (GMD AU), Newcrest Mining (NCM AU), Aag Energy Holdings (2686 HK).
Lowest spreads – Nitro Software Ltd (NTO AU),Norwest Energy NL (NWE AU), GK Goh Holdings (GKG SP), Boustead Projects (BOCJ SP), Nippon Steel Trading Corporation (9810 JP), Nissin Electric.

Meritz Financial Group: A Large Share Buyback Amid Global Financials Uncertainties

On 17 March (after market close), Meritz Financial Group (138040 KS) announced a share buyback program worth 400 billion won, which represents 5.4% of its market cap.
Given the relative large size of this deal, it should have a positive impact on its share price, especially on a relative basis against its competitors.
The collapse of SVB Financial and uncertain investors’ reactions on the purchase of Credit Suisse by UBS will likely add to the global investors’ negative sentiment on the financial sector.

Korean Government Reviews Rules to Ease Foreign Ownership Limits

In recent days, the Korean government announced that it is reviewing foreign ownership limit rules.
The main reasons are to align South Korea’s financial policies in line with the global standards and improve the chances of South Korea becoming included in MSCI Developed country status.
Key companies that could benefit from potential raise of foreign ownership limit include SK Telecom, KT Corp, and SBS.

SSE50 Index Rebalance Preview: BIG Outperformance Over the Last Month

Nearly 90% through the review period, we see 6 potential adds and 5 potential deletes in June. However, there can be a maximum of 5 changes at a rebalance.
We estimate a one-way turnover of 5.07% at the June rebalance leading to a one-way trade of CNY 3.97bn. Index arb activity could add to the impact on the stocks.
The potential adds have outperformed the potential deletes by 17% over the last month and by 21% over the last two months.

Golden Energy: Offer Bumped. Still Insulting

The Widjaja family has responded to criticism from various quarters over its low-balled Offer for Golden Energy & Resources (GER SP) and revised terms.
The all-cash payout for the 62.5% stake in Golden Energy Mines (GEMS IJ) is now 15.5% higher at S$0.792/share. The exit offer is 13% higher at S$0.18.1.
No matter how you slice it, the bump is petty. GEAR’s “rump” is currently worth at least S$0.63/share.

ChiNext/ChiNext50 Index Rebalance Preview: Overlapping Stocks & Recent Outperformance

Three quarters of the way through the review period, we forecast 10 changes for the Chinext Price Index (SZ399006 INDEX) and 5 changes for the ChiNext 50 Index in June.
Passive trackers will need to buy +/-0.5 days of ADV for most inclusions and exclusions from the indices. On average, the impact on the potential deletions is higher.
The potential adds have outperformed the potential deletes over the last six months, and there has been a sharp widening of the gap over the last few weeks.

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Mar 19

Daily Brief Event-Driven: EQD | Volatility Update: Weekly Review of Vol Changes and Best Trades 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
Halcyon Agri (HACL SP): Hainan Rubber’s Offer Is Declared Unconditional
Index Rebalance & ETF Flow Recap: STAR50, HSCEI, CSI300, KOSDAQ150, Japan Post Bank
Halcyon Agri’s Offer Is Now Unconditional
Last Week in Event SPACE: Japan Post Bank, S.M Entertainment, Toshiba, Link REIT
(Mostly) Asia-Pac Weekly Risk Arb Wrap: Oishi, AAG, Pushpay, GK Goh, Halcyon Agri, S.M.Entertainment

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

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

Halcyon Agri (HACL SP): Hainan Rubber’s Offer Is Declared Unconditional

Halcyon Agri (HACL SP)’s S$0.413 per share MGO from China Hainan Rubber Industry (601118 CH) has met the 50%+ minimum acceptance condition.
The closing date is extended from 24 March to 10 April. The payment settlement is within seven business days of receipt of a valid acceptance.
The offeror currently represents 50.003% of outstanding shares. At the last close, the gross and annualised spread for a 10 April payment is 2.0% and 41.8%, respectively.

Index Rebalance & ETF Flow Recap: STAR50, HSCEI, CSI300, KOSDAQ150, Japan Post Bank

There were a bunch of rebalances on Friday across Asia resulting in big flows across multiple stocks and countries.
The coming week is quieter with no scheduled rebalances – though the KOSDAQ 150 Index rebalance could take place dependent on Kuk Il Paper Mfg (078130 KS)‘s trading resumption.
Inflows to China and Taiwan ETFs while Korean ETFs had outflows. Market volatility resulted in redemptions from iShares MSCI Emerging Markets (EEM) and IShares MSCI Min Vol Emerging Markets (EEMV).

Halcyon Agri’s Offer Is Now Unconditional

China Hainan Rubber Industry (601118 CH)‘s Offer for Halcyon Agri (HACL SP) is now unconditional in all respects.
The closing date has accordingly been extended to the 10 April. It can be further extended.
This transaction is done. And will trade tight to terms.

Last Week in Event SPACE: Japan Post Bank, S.M Entertainment, Toshiba, Link REIT

Medium-Term, Japan Post Bank (7182 JP) is not in great shape fundamentally compared to others We still know nothing about TOPIX. And we may just not hear.
Kakao Corp (035720 KS) to take control of S.M.Entertainment Co (041510 KS) after HYBE (352820 KS) throws in the towel.
The world is quite volatile now, and funding is probably more precious today than yesterday. But a bid for Toshiba Corp (6502 JP) is too.

(Mostly) Asia-Pac Weekly Risk Arb Wrap: Oishi, AAG, Pushpay, GK Goh, Halcyon Agri, S.M.Entertainment

There are 42 – 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 was discussed on Smartkarma this past week: Thai Beverage (THBEV SP)‘s delisting Offer for Oishi Group PCL (OISHI TB).
Key updates took place for AAG Energy Holdings (2686 HK), Pushpay Holdings (PPH NZ), GK Goh Holdings (GKG SP), Halcyon Agri (HACL SP), and S.M.Entertainment Co (041510 KS).

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Mar 18

Daily Brief Event-Driven: Flow Trading Targeting Cap Reversion in TIGER Battery ETF Rebalancing on April 13 and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Flow Trading Targeting Cap Reversion in TIGER Battery ETF Rebalancing on April 13
Four Companies Likely to Switch Their Listing from KOSDAQ to KOSPI in 2023/2024
MFE/Mediaset España: Merger Approval, Spread and Delisting

Flow Trading Targeting Cap Reversion in TIGER Battery ETF Rebalancing on April 13

There seems to be no constituent change this time. However, opportunities from cap reversion are likely to lead to noteworthy passive flows.
Ecopro BM and Ecopro Co will experience a weight movement of -4.35% and -3.68%p. On the other hand, SK Innovation will enjoy the most pleasant passive impact.
At KODEX Battery’s March rebalancing, the Long SK Innovation Short Ecopro BM position setup provided a return of more than 10% with a similar level of impact x ADTV.

Four Companies Likely to Switch Their Listing from KOSDAQ to KOSPI in 2023/2024

In this insight, we discuss four companies that are likely to switch their listing from KOSDAQ to KOSPI in 2023/2024.
These four companies include Ecopro BM, Ecopro Co, BH Co, and Nice Information Service.
BH Co and Nice Information Service have included the agenda of transfer of the listing from KOSDAQ to KOSPI in their upcoming AGMs this month.

MFE/Mediaset España: Merger Approval, Spread and Delisting

By Jesus Rodriguez Aguilar

TL5 holdouts have exposed themselves to being trapped by MFE, which has already shown in the past that it has no qualms about running its subsidiary for its own interests.
The implied exchange values the audiovisual business of TL% at 1.2 EV/22eEBITDA TL5/MFEA spread is +3.02%, I would wait for it to turn negative to open a position.
MFE A shares are trading at a 34.7% discount, which seems excessive nevertheless. With more A shares coming in the market (and higher liquidity), I would be long MFEA/short MFEB.

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Mar 17

Daily Brief Event-Driven: Pushpay (PPH NZ): Sixth Street/BGH Return with a NZ$1.42 Offer and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Pushpay (PPH NZ): Sixth Street/BGH Return with a NZ$1.42 Offer
Quiddity Flow Expectations HSCEI Jun 23: 2 ADDs/DELs Possible; Capping Flows US$585mn One-Way
Quiddity Flow Expectations HSTECH Jun 23: New Oriental Education IN; AAC Technologies OUT
Cosmo AM&T: Strong Momentum from Likely Inclusion in MSCI Korea Standard in 2023

Pushpay (PPH NZ): Sixth Street/BGH Return with a NZ$1.42 Offer

Sixth Street/BGH have come back for Pushpay Holdings (PPH NZ) with a revised offer of NZ$1.42 per share, a 6.0% premium to the previous failed offer of NZ$1.34 per share.
Sixth Street/BGH have secured total commitments to accept the offer from 28.9% of outstanding shares, including all the shareholders that publicly voted against the previous scheme.
The offer is around the mid-point of the IE’s valuation range. At the last close and for the end-May payment, the gross and annualised spread is 2.2% and 7.4%, respectively.

Quiddity Flow Expectations HSCEI Jun 23: 2 ADDs/DELs Possible; Capping Flows US$585mn One-Way

In this insight, we take a look at the potential index changes and the resultant capping flows for the HSCEI Index in June 2023.
According to our estimation, there could be two changes for the HSCEI in June 2023 and there could be one-way index flows of US$585mn.
The final index changes along with indicative capping and index weights could be published in Mid/Late-May 2023.

Quiddity Flow Expectations HSTECH Jun 23: New Oriental Education IN; AAC Technologies OUT

In this insight, we take a look at the potential index changes and the resultant capping flows for the HSTECH Index in June 2023.
According to our estimation, there could be one ADD/DEL for the HSTECH in June 2023 triggering total one-way index flows of US$238mn.
The final index changes along with indicative capping and index weights will be published in Mid/Late-May 2023.

Cosmo AM&T: Strong Momentum from Likely Inclusion in MSCI Korea Standard in 2023

We provide a fundamental analysis of Cosmo AM&T (005070 KS) (Cosmo Advanced Materials & Technology), which is increasingly likely to become included in MSCI Korea Standard index in 2023.
Cosmo AM&T is a borderline inclusion candidate for MSCI Korea Standard in May 2023. If it does not get included in May, it could get included in 2H 2023.
All in all, the increasing possibility of MSCI Korea Standard inclusion combined with strong sales and profit momentum could result in a further positive momentum on its share price.

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Mar 16

Daily Brief Event-Driven: Link REIT (823) – Anchors Aweigh! Fair Weather Sailing Ahead and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Link REIT (823) – Anchors Aweigh! Fair Weather Sailing Ahead
Toshiba (6502) – Funding Possibly Re-Secured, Deal Possibly In Play,
Anycolor (5032 JP) Shows Its Colours – Great Quarter Guys! and TOPIX-Bound
AAG Energy (2686 HK): Full-Year Results Lay Bare Xinjiang Xintai’s Low-Balled Offer
KOSDAQ150 Ad Hoc Index Rebalance: Lake Materials (281740) To Replace Kuk Il Paper (078130)
Japan Post Bank (7182) – The Flow Calendar
AAG Energy (2686 HK): Solid Results Amplify the Risk of the NO Vote
An Increasing Probability of LG Corp Preferred Shares Cancellation
CSI300 Index Rebalance Preview: Narrowing the Gap
Liquid Universe of European Ordinary and Preferred Shares: March ‘23 Report

Link REIT (823) – Anchors Aweigh! Fair Weather Sailing Ahead

The Link REIT (823 HK) rights offering caused some upset amongst investors. They got dilution where they did not need it, and de-leveraging from a REIT wanting to invest.
The units fell in price, then fell some more. Then the rights started trading.
Last week in Link REIT (823) – Nil Paid Rights Start Trading Tomorrow – The Trades I said strategy was to be long by Tuesday or Wednesday. It’s Wednesday.

Toshiba (6502) – Funding Possibly Re-Secured, Deal Possibly In Play,

Bloomberg has an article today after the close saying Toshiba Corp (6502 JP)‘s board will meet tomorrow to discuss the JIP bid, and the Special Committee will give its recommendations.
The article suggests the Board may proceed with a vote. If they do, an announced bid could come as early as the afternoon.
The world is quite volatile now, and funding is probably more precious today than yesterday. But a bid is too. All in all, I see no reason for a position.

Anycolor (5032 JP) Shows Its Colours – Great Quarter Guys! and TOPIX-Bound

Anycolor (5032 JP) reported Q3 results today. 9mo Revenue is now above the lower end of original forecasts for the full-year. 9mo OP is 25% higher than the original mid-range.
The net profit forecast is now up 51% from the original mid-range, and up 128% on the year. The stock has cratered. Badly.
It is now 19x April 2023 earnings for 90% revenue growth and 150% Net Profit growth and 40% OPM in the last quarter. Go figure.

AAG Energy (2686 HK): Full-Year Results Lay Bare Xinjiang Xintai’s Low-Balled Offer

On the 17 February, AAG Energy Holdings (2686 HK) announced an Offer of HK$1.85/share (declared final) by way of a Scheme from major shareholder Xinjiang Xintai Natural Gas (603393 CH).
At a 10.1% premium to undisturbed and just a 2.2% premium over the highest closing price of HK$1.81/share in the past year, the Consideration price was unreasonable.
FY22 numbers are now out, which further illustrates the Offer price’s inadequacy. AAG’s trailing PER and EV/EBITDA are 3.6x and 1.4x. Net cash accounts for 41% of AAG’s market cap.

KOSDAQ150 Ad Hoc Index Rebalance: Lake Materials (281740) To Replace Kuk Il Paper (078130)

Following Kuk Il Paper Mfg (078130 KS)‘s designation as an Administrative Issue, the stock will be deleted from the KOSDAQ 150 Index and replaced with Lake Materials (281740 KS).
The timing of the index change is currently uncertain but will be implemented latest by the close of trading on 6 April.
Lake Materials (281740 KS) was up today and is nearing its highs. There could be another leg higher on the inclusion but we’d be wary of chasing the stock higher.

Japan Post Bank (7182) – The Flow Calendar

The near-term Supply/Demand Balance is helped or hurt – depending on how well the deal has been placed to retail, by overseas bank turmoil.
Quality of placement to retail is tough to know from outside. We have near-term offsets with both index demand and dividend looming.
The biggest near-term differentiator in possible supply/demand outcomes is, of course, in the hands of the TSE Index team. And we just don’t know.

AAG Energy (2686 HK): Solid Results Amplify the Risk of the NO Vote

Aag Energy Holdings (2686 HK) released solid FY22 results which magnify the scheme risk of Xinjiang Xintai Natural Gas (603393 CH)‘s pre-conditional privatisation offer of HK$1.85 per share.
The FY22 metrics show that the offer values AAG at a lower EV/1P Reserve and EV/Production vs the 2018 offer. It is unattractive in comparison to historical and peer multiples.
The solid FY22 results and lack of dividends amplify the risk that minorities vote NO. The downside is capped as the shares are trading below the undisturbed price.

An Increasing Probability of LG Corp Preferred Shares Cancellation

In this insight, we discuss an increasing probability of the cancellation of LG Corp preferred shares.
We provide five major reasons as to why LG Corp should cancel its entire preferred shares and how this could have a positive impact on LG Corp’s share price.
We believe a 5-10% buyback and cancellation of LG Corp’s preferred shares in the next 1-2 years is a higher probability.

CSI300 Index Rebalance Preview: Narrowing the Gap

Over 85% of the way through the review period, we see 14 potential index changes at the June rebalance that will be implemented at the close on 9 June.
We estimate a one-way turnover of 2.28% at the June rebalance leading to a one-way trade of CNY 5.95bn.
The potential adds have outperformed the CSI 300 Index over the last two months but have underperformed the potential deletes. The gap has been narrowing recently.

Liquid Universe of European Ordinary and Preferred Shares: March ‘23 Report

By Jesus Rodriguez Aguilar

Since mid-February, spreads have generally tightened across our liquid universe (9 have widened, 10 tightened, 0 at same level).
Trade preferences long ordinary / short preferred shares: Fuchs Petrolub, Henkel, Handelsbanken, SSAB Svenska Stal.
Trade preferences long preferred / short ordinary shares: Sixt, VW, Danieli, MFE-Media for Europe, Grifols, Atlas Copco, Ericsson.

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Mar 15

Daily Brief Event-Driven: SM Entertainment: Kakao’s Tender Offer Proration Analysis and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

SM Entertainment: Kakao’s Tender Offer Proration Analysis
HSCEI Index Rebalance Preview: China Shenhua (1088) Could Replace Country Garden (2007); Div Impact
SM Ent Tendering P&L & Allocation Risk for a 30% Spread Opening
TBS (9401) Selling Cross-Holdings But Don’t Hold Your Breath
Australia: S&P/ASX, REMX, GDXJ, MVA, MVW, Other Flows on Friday

SM Entertainment: Kakao’s Tender Offer Proration Analysis

In this insight, we provide a proration analysis of the S.M.Entertainment Co (041510 KS) tender offer by Kakao Corp (035720 KS).
Our base case assumes 71.4% of outstanding shares will participate in the tender offer, including HYBE, NPS, KB Asset Mgmt, Com2Us, and 70% of the remaining local and overseas investors.
There is a very high probability of a successful tender offer of SM Entertainment shares by Kakao. Post end of tender offer, its share price could fall about 5-10%, however.

HSCEI Index Rebalance Preview: China Shenhua (1088) Could Replace Country Garden (2007); Div Impact

China Shenhua Energy Co H (1088 HK) could replace Country Garden Holdings Co (2007 HK) in the Hang Seng China Enterprises Index (HSCEI INDEX) at the June rebalance.
Short interest on China Shenhua Energy Co H (1088 HK) is pretty small while the short interest on Country Garden Holdings Co (2007 HK) is large and possibly getting bigger.
The change could result in a big increase in the fair value for the HSCEI 2023 dividend futures. Currently, we estimate an increase of up to 9 DIPS.

SM Ent Tendering P&L & Allocation Risk for a 30% Spread Opening

The target volume is 47.6% of the nominally estimated tendering pool size. It may go up due to retail investors’ typically low participation in tendering.
Other factors MAY OFFSET this. Most notable is the tendering possibility of HYBE (18.45%) and Lee Soo-man (4.96%). Combining these, the allocation rate will likely be between 50% and 60%.
Using this 50-60% band as a reference point, we should assess the risk of mismatching between the degree of post-tendering price correction and our loss buffer range for non-tendered shares.

TBS (9401) Selling Cross-Holdings But Don’t Hold Your Breath

Three years ago I wrote a piece about the history of activism at Tokyo Broadcasting System (9401 JP), suggesting it was not expensive but activist gains might be hard won.
Yesterday, TBS announced it would sell strategic cross-holdings to raise cash for investment, as per its Medium-Term Management Plan 2023, and its full-year forecast Net Profit would rise 75%.
That tells you what you need to know, and it guides you to the value within.

Australia: S&P/ASX, REMX, GDXJ, MVA, MVW, Other Flows on Friday

Changes to the S&P/ASX indices, VanEck Vectors Rare Earth/Strategic Metals ETF, VanEck Vectors Junior Gold Miners ETF, Vaneck Aus Equal Weight ETF, and other indices will be implemented 17 March.
There are plenty of stocks with multiple days of ADV to trade. Some pre-positioning would have taken place prior to announcement and positions adjusted in the last couple of weeks.
There has been a reversal in stock performance over the last few weeks and short interest has moved a lot in some stocks.

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Mar 14

Daily Brief Event-Driven: Japan Post Bank (7182 JP): Offering Price Decided; Buyback & Passive Flow Coming Up and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Japan Post Bank (7182 JP): Offering Price Decided; Buyback & Passive Flow Coming Up
Halcyon Agri’s Offer: IFA Says Fair. Independent Directors Say Accept
Names for a Preemptive Long Short Setup for KOSPI 200 June Rebalancing
Shorting Event on LX International’s Potential Rights Offer for HMM Takeover
SK Networks: 100 Billion Won in Share Buyback + 70 Billion Won in Treasury Shares Cancellation
MSCI Korea Potential Adds & Deletes in May 2023 Amid Heightened Market Volatility
Quiddity Leaderboard for BSE/SENSEX Jun 23: NMDC Could Be a BSE 200 ADD
G.K.Goh’s Offer Doc Out. No New News Otherwise
FY2022 Results and Discount to NAV

Japan Post Bank (7182 JP): Offering Price Decided; Buyback & Passive Flow Coming Up

Japan Post Bank (7182 JP) has announced that the offering price has been set at JPY 1131/share, a 2.08% discount to the closing price. Settlement is on 20 March.
The buyback will run from 22 March to 12 May and at last prices will mop up 1.85% of shares outstanding or 4.62% of post-offering float.
In the short-term, we expect buying from Topix (TPX INDEX), MSCI and other global trackers to support the stock price.

Halcyon Agri’s Offer: IFA Says Fair. Independent Directors Say Accept

Halcyon Agri (HACL SP) has issued the circular in response to China Hainan Rubber Industry (601118 CH)‘s conditional MGO.
The IFA reckons the Offer is fair and reasonable. The Independent Directors recommend that shareholders accept the Offer.
The first close is the 24 March. Hainan Rubber is under no obligation to extend the Offer beyond this date.

Names for a Preemptive Long Short Setup for KOSPI 200 June Rebalancing

Kum Yang and Youlchon Chemical are within the borderline for inclusion, whereas Hwaseung Enterprise and K Car are in the deletion zone.
Since the review period has reached 75%, it seems reasonable to consider a somewhat aggressive buildup for them.
We can also consider setting up preemptive positions only for Kum Yang and Hwaseung Enterprise and then sequentially look for entry opportunities for Youlchon and K Car later on.

Shorting Event on LX International’s Potential Rights Offer for HMM Takeover

The opinion rapidly spreading in the local market is that LX International is increasing its available shares by twice the amount to plan a paid-in increase for the HMM acquisition.
The size of an offering is estimated at ₩1.2T to ₩1.5T. The short-term price impact will undoubtedly be significant for LX International having a market cap of ₩1.2T.
The market has already witnessed a preemptive position buildup targeting this. However, since there is a time gap until the offering announcement, an entry point opportunity may still be available.

SK Networks: 100 Billion Won in Share Buyback + 70 Billion Won in Treasury Shares Cancellation

SK Networks announced that it will repurchase 100 billion won in common shares and also cancel nearly 70 billion won of existing treasury shares.
The combined share buyback and treasury shares cancellation will represent nearly 14% of the company’s total outstanding shares.
The combined share buyback and treasury shares cancellation which will represent nearly 14% of the company’s total outstanding shares, will likely have a positive impact on SK Network’s share price.

MSCI Korea Potential Adds & Deletes in May 2023 Amid Heightened Market Volatility

In this insight, we discuss the potential inclusions and exclusions in the next MSCI Korea Index rebalance announcement in May 2023 amid heightened market volatility.
The potential inclusions (high probability) in the MSCI Korea index in May are Hanwha Aerospace and Ecopro. Potential adds (low probability) include POSCO International, Cosmo AM&T, and SM Entertainment.
The three most likely exclusions in the MSCI Korea index in May include Lotte Shopping, SD Biosensor, and S1 Corporation.

Quiddity Leaderboard for BSE/SENSEX Jun 23: NMDC Could Be a BSE 200 ADD

In this insight, we take a look at the Potential ADDs/DELs for the BSE SENSEX, 100, 200, and 500 Indices in the June 2023 Rebalance.
The BSE AllCap March 2023 Rebalance results were announced and this changes the main universe from which SENSEX, BSE 100, and BSE 200 members are selected.
In this insight, we take a look at the recent updates to my expectations and the price and volume performance of the candidates.

G.K.Goh’s Offer Doc Out. No New News Otherwise

The Offer Document for GK Goh Holdings (GKG SP)‘s MBO has been dispatched. The Offer price of $1.26/share, which is final, is a 38.5% premium to last close.
The Offer is conditional on the Goh family holding 90%, which may be reduced to 50%. GKG Investment, with 62.89%, has given an irrevocable to tender.
There is no IFA opinion in the Offer Doc. This will be present in the Circular which is expected to be sent out by the 28th March, at the latest.

FY2022 Results and Discount to NAV

By Jesus Rodriguez Aguilar

NAV/Share down 19% for FY2022 in line with falls in the market. Private/alternative assets represented 36.3% of GAV and 39.86% of NAV. Discount to NAV was 35.8% as of YE2022.
The discount to NAV was 36.7% as of 10 March. GBL is buying and cancelling its own shares, which creates value as it’s done at a deep discount to NAV.
GBL has completed its transition towards a 40% of private/alternative assets in portfolio, but still needs to convince investors to lower its discount to levels closer to Investor AB.

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Mar 13

Daily Brief Event-Driven: MVIS Australia Equal Weight Index Rebalance: One Deletion & Other Changes and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

MVIS Australia Equal Weight Index Rebalance: One Deletion & Other Changes
Japan Post Bank – Estimating Foreign Ownership and Deal Flowback
MVIS Australia A-REITs Index Rebalance: Float/Capping Changes
MVIS US Listed Semiconductor 25 Index Rebalance: Big Flow, Small Impact
Japan Post Bank Placement – Still Misbehaving – Post-Pricing Performance of Some More Deals
HYBE Gives Up the M&A Fight for SM Entertainment: Impact on Kakao’s Tender Offer
STAR50 Index Rebalance Preview: Two Changes in June (Possibly)
Halcyon Agri (HACL SP): Board Recommends Conditional MGO
ThaiBev To Take Oishi Group Private
Merger Arb Mondays (13 Mar) – InvoCare, Origin, Tyro, Toyo, Oishi, AAG Energy, Yashili, Halcyon

MVIS Australia Equal Weight Index Rebalance: One Deletion & Other Changes

Harvey Norman Holdings (HVN AU) will be deleted from the MVIS Australia Equal Weight Index at the close of trading on 17 March.
One way turnover is 3.9% resulting in a one-way trade of A$68m. Only Harvey Norman Holdings (HVN AU) has more than 1 day of ADV to sell from passive trackers.
Harvey Norman Holdings (HVN AU) has underperformed Myer Holdings (MYR AU) significantly over the recent past and the index deletion could provide an entry point into a trade.

Japan Post Bank – Estimating Foreign Ownership and Deal Flowback

The word floating around late Friday as books closed was that foreigners had bid strongly. More than the entire Japan Post Bank (7182 JP) offering size in fact.
The offering is an interesting problem, as discussed before. Different people are going to buy it for different reasons.
This insight looks at the breakdown of ratios and the resultant foreign ownership, along with post-offer supply/demand balance.

MVIS Australia A-REITs Index Rebalance: Float/Capping Changes

The upcoming rebalance of the MVIS Australia A-REIT Index will be implemented at the close on 17 March. There are no constituent changes, but there are float and capping changes.
Estimated one-way turnover at the rebalance is 1.8% resulting in a one-way trade of A$11.1m. There is limited impact on the index constituents.
The largest inflows are on Stockland, HomeCo Daily Needs REIT, Gpt Group and Charter Hall, while the largest outflows are on Goodman Group, Vicinity Centres, Dexus Property and Scentre Group.

MVIS US Listed Semiconductor 25 Index Rebalance: Big Flow, Small Impact

The upcoming rebalance of the MVIS US Listed Semiconductor 25 Index will be implemented on 17 March. There are no constituent changes, but there are float and capping changes.
The VanEck Vectors Semiconductor (SMH US) ETF tracks the index and has an AUM of US$7.2bn.
Estimated one-way turnover is 4.8% resulting in a one-way trade of US$356m. The stocks are extremely liquid, the impact on the stocks in terms of ADV to trade is small.

Japan Post Bank Placement – Still Misbehaving – Post-Pricing Performance of Some More Deals

By Sumeet Singh

Japan Post Holdings (6178 JP) aims to sell around US$9bn worth of Japan Post Bank (7182 JP), trimming its stake by a third.
We have looked at the deal in our previous notes, Japan Post Bank Placement – Deal Structure, past Deals, Index, Buyback and Japan Post Bank Placement – Misbehaving.
In this note, we talk about the updates since our last note and have a look at the post pricing performance of a few more deals.

HYBE Gives Up the M&A Fight for SM Entertainment: Impact on Kakao’s Tender Offer

On 12 March, HYBE (352820 KS) announced that it is no longer pursuing S.M.Entertainment Co (041510 KS) in an M&A battle with Kakao Corp (035720 KS).
This will result in a very high probability of Kakao winning the M&A battle of SM Entertainment.
Many institutional investors are likely to have pushed back on HYBE’s capital raising efforts, which seems to have been the clincher of HYBE backing out of this M&A for SM.

STAR50 Index Rebalance Preview: Two Changes in June (Possibly)

The review period for the June rebalance ends 30 April. We expect the changes to be announced 26 May with the implementation taking place after the close on 9 June.
We expect the index committee to continue using a 6-month minimum listing history resulting in two changes to the index.
One way turnover is estimated at 1.6% resulting in a one-way trade of CNY 1,442m. The impact on the deletions will be larger than that on the inclusions.

Halcyon Agri (HACL SP): Board Recommends Conditional MGO

The IFA opines that China Hainan Rubber Industry (601118 CH)‘s MGO at S$0.413 per share is fair and reasonable. The Halcyon Agri (HACL SP) Board recommends accepting the offer.
Since the offer opened on 24 February, there have been no acceptances. Perhaps minorities held off until the full-year results and the IFA report. Board recommendation should drive acceptance.
The 50%+ minimum acceptance condition requires around 40% of minorities acceptance rate (47% excluding the Gondobintoro Family). This remains achievable. At the last close, the gross spread is 2.0%.

ThaiBev To Take Oishi Group Private

Thai Beverage (THBEV SP) is proposing to take 79.66%-held Oishi Group PCL (OISHI TB) private by a voluntary Delisting Offer.
The Offer price is THB 59/share, a 26.9% premium to last close.
This Delisting Offer requires a shareholder vote. Payment may occur sometime in August.

Merger Arb Mondays (13 Mar) – InvoCare, Origin, Tyro, Toyo, Oishi, AAG Energy, Yashili, Halcyon

We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
Highest spreads 21Vianet Group (VNET US), 111 Inc (YI US), Alliance Aviation Services (AQZ AU), Oishi Group PCL (OISHI TB), Toyo Construction (1890 JP), Aag Energy Holdings (2686 HK), Jiangnan.
Lowest spreads – Norwest Energy NL (NWE AU), Genesis Minerals (GMD AU), GK Goh Holdings (GKG SP), Nitro Software Ltd (NTO AU), Boustead Projects (BOCJ SP), Nissin Electric (6641 JP).

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✓ Company Data and News
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Mar 12

Daily Brief Event-Driven: MVIS Vietnam Index Rebalance: One Deletion; Float & Capping Changes and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

MVIS Vietnam Index Rebalance: One Deletion; Float & Capping Changes
ASMPT (522 HK): PAG Potential Privatisation?
Oishi Group (OISHI TB): ThaiBev’s Delisting Tender Offer at THB59.00
Swire Back To Buying Back – One-Third To Go
MVIS Global Junior Gold Miners Index Rebalance: Three Deletions & Float Changes
Index Rebalance & ETF Flow Recap: MSCI China, S&P/ASX, KOSDAQ150, KOSPI, CPSE/Bharat22, YES, OZL
MVIS Global Rare Earth/Strategic Metals Index Rebalance: Float & Capping Changes on Friday
Last Week in Event SPACE: Dai Nippon Printing, Melco, Hosokawa Micron,Tencent/Meituan, Ihara Science
(Mostly) Asia-Pac Weekly Risk Arb Wrap: Invocare, Yashili, Pushpay Holdings, S.M.Entertainment
EQD | Volatility Update: Weekly Review of Vol Changes and Best Trades

MVIS Vietnam Index Rebalance: One Deletion; Float & Capping Changes

Saigon Thuong Tin Commercial (STB VN) will be deleted from the MVIS Vietnam Index at the close of trading on 17 March.
One-Way turnover is 4.2% and the one-way trade is US$21m. There are two stocks where passive trackers need to buy over 1 day of ADV.
There have been big inflows to the Market Vectors Vietnam ETF (VNM US) over the last three months as the index has traded near its lows.

ASMPT (522 HK): PAG Potential Privatisation?

Bloomberg reported that PAG and other parties have expressed interest in taking ASM Pacific Technology (522 HK) private. PAG also sounded out several lenders.
ASMPT has three substantial shareholders (Asm International Nv (ASM NA), FIL Limited and Schroders PLC (SDR LN)) which suggests a requirement for a reasonable takeover premium.
ASMPT previously denied a privatisation rumour in 2020. Nevertheless, peers and historical multiples imply a fair price range of HK$82-97 per share, 11-31% premium to the last close.

Oishi Group (OISHI TB): ThaiBev’s Delisting Tender Offer at THB59.00

Oishi Group PCL (OISHI TB) has disclosed a delisting tender offer from Thai Beverage (THBEV SP) at THB59.00 per share, a 26.9% premium to the undisturbed price (10 March).
The offer is conditional on Oishi shareholder approval which requires 75% approval by total outstanding shares and <10% rejection by total outstanding shares. ThaiBev can vote at the EGM.
The offer price is reasonable and timing is the key risk. The delisting EGM will be held on 3 May. The offer must be open for 45 business days.

Swire Back To Buying Back – One-Third To Go

After two months of zero buybacks under their HK$4bn buyback programme, on Friday Swire Pacific (A) (19 HK) | Swire Pacific (B) (87 HK) again bought back shares.
Ostensibly, it was as Swire A shares fell below HK$60/share. They were 65% of B volume and 51% of A volume on Friday – not shy about their return.
Assuming participation patterns normalise and the shares don’t bounce back above the self-imposed limit, the buyback will probably last 6-7 weeks more. The div arb is real if you hold.

MVIS Global Junior Gold Miners Index Rebalance: Three Deletions & Float Changes

Dacian Gold Ltd (DCN AU), Gold Resource (GORO US) and Wallbridge Mining Co (WM CN) will be deleted from the index at the close on 17 March.
One way turnover is estimated at 2.8% resulting in a one-way trade of US$96m. There is over 1 day of ADV to trade on 22 stocks.
The largest inflows are on Triple Flag Precious Metals (TFPM US), Osisko Gold Royalties, Zhaojin Mining Industry, New Found Gold (NFG CN), Yamana Gold, IAMGOLD and First Majestic Silver.

Index Rebalance & ETF Flow Recap: MSCI China, S&P/ASX, KOSDAQ150, KOSPI, CPSE/Bharat22, YES, OZL

Some KOSPI indices rebalanced at the close on Thursday while the Hang Seng family of indices and the SSE STAR50 (STAR50 INDEX) rebalanced at the close on Friday.
The S&P/ASX family, MVIS family and a bunch of other indices will rebalance at the close on coming Friday.
After seeing big inflows over the last couple of years, outflows from Samsung KODEX Secondary Battery ETF (305720) and Mirae Asset TIGER Secondary Cell ETF (305540) have started to pick up.

MVIS Global Rare Earth/Strategic Metals Index Rebalance: Float & Capping Changes on Friday

There are no constituent changes for the MVIS Global Rare Earth/Strategic Metals Index at the March rebalance. There are free float and capping changes though.
One way turnover is estimated at 3.1% and will result in a one-way trade of US$19m. Flows are relatively small with no impact over 1x ADV on any stock.
The June rebalance should have constituent changes with an increase in the number of stocks in the index universe.

Last Week in Event SPACE: Dai Nippon Printing, Melco, Hosokawa Micron,Tencent/Meituan, Ihara Science

Dai Nippon Printing (7912 JP) is a range trade. The juice is in the speed of the Corporate Buyback and how excited people get.
With the renewal of the gaming concession in the bag and Melco Resorts (MLCO US) up 128% in the past six months, Melco (200 HK) has extracted ~HK$2.5bn from MLCO.
Hosokawa Micron (6277 JP)‘s current PER of 9.9x ignores that net cash and securities holdings is about half of market cap. This is a cheap stock.

(Mostly) Asia-Pac Weekly Risk Arb Wrap: Invocare, Yashili, Pushpay Holdings, S.M.Entertainment