Event-Driven

Melco Resorts & Entertainment (MLCO US) has entered into a share repurchase agreement with a wholly-owned entity of Melco International Development (200 HK) to repurchase (and cancel) 40.37mn shares for US$169.8mn.
Melco’s effective holding will decline to 51.7% from 53.1% currently. This is the second parent/sub repurchase agreement in the last 7 months.
MLCO’s previously announced US$500mn share repurchase program remains unaffected by this privately negotiated transaction, with US$412mn still available for future repurchases under the program.

Dai Nippon Printing – Gauging The Upside

By Mio Kato

Despite the strong performance from Dai Nippon Printing following the announcement of Elliott’s stake we feel upside remains.
Operating results should benefit from normalisation of the economy and light restructuring potential.
In addition, we do not see much evidence to suggest that valuations are particularly stretched.

Nippon Yusen – New MidTermPlan = New Shareholder Return Policy

Today at lunch, Nippon Yusen Kk (9101 JP) released a New Medium-Term Management Plan Presentation (FY2023 to 2026). “Sail Green, Drive Transformations 2026 – A Passion for Planetary Wellbeing.”
It has basic investment plans, including growing scale of ONE container shipping alliance, growing auto logistics, spending on fuel conversions, offshore wind, hydrogen/ammonia, and doing some logistics M&A
They also plan a new Shareholder Return Policy. That raises minimum dividend, expected payout ratio, and involves ¥200bn of buybacks the next two fiscal years. Read on.

Nippon Steel/Mitsui TOB for Nippon Steel Trading (9810) Starts

Today, Nippon Steel Corporation (5401 JP) and Mitsui & Co Ltd (8031 JP) announced they would launch the TOB to take over Nippon Steel Trading Corporation (9810 JP) starting Monday.
I wrote about the deal and its parameters in December 2022 in Nippon Steel & Mitsui & Co to Buy Out Nippon Steel Trading (9810) At 87% Premium.
This gets done easily I expect. Boring, but decent very short-term carry on the bid side.

Long Short Setup on KOSDAQ 150 Ad Hoc Change with SK Oceanplant’s KOSPI Transfer Listing

SK Oceanplant will likely be listed on KOSPI in late May or early June. There are no clear reasons for KRX to oppose SK Ocean Plant’s move to KOSPI.
The top reserved issue in INDUSTRIALS, Sun Kwang (003100 KS), will replace it in KOSDAQ 150. The effective date is the delisting day.
The impact size on the delisting day alone may be well above 1x ADTV for both companies, so we will likely see a significant price movement.

Thoughts About the Failed Offer for Allfunds

As per the failed offer terms, consideration would amount to €5,507 million, of which €3,581 million in cash, which would stretch the balance sheet of Euronext.
Euronext should issue equity to fund part of the cash component, but the EPS accretion in a base case scenario would be just 4.5% (see sensitivity analysis premia/ENX share price).
If any exchange operators were truly interested in acquiring Allfunds, I find it surprising that they would not had acquired shares during some share placements in October 2022.

LG Corp: A Family Feud! (Mother & Sisters Sue Their Chairman Son) Enter the Private Equity Dragons?

There is a major family feud on LG Group. Koo Kwang-Mo (Chairman of LG Group)’s mum and sisters are suing Chairman Koo to demand more money.
We believe that this family feud among the members of the LG Group regarding the inheritance recovery is likely to heighten the importance of the controlling stake in LG Corp.
Similar to what has happened with Osstem Implant, it is very possible that mum and sisters are discussing various strategies with some of the biggest private equity dragons in Asia/globally.

Acceptance Period for Triton’s Offer Commences, Irrevocables for Bain’s Cease to Be in Effect

On 8 March, the Bain’s consortium announced that it will lower the minimum acceptance threshold from over 66.66% to over 50%. Irrevocables seem to have ceased to be in effect.
Triton’s all in: the acceptance period for its offer commenced on 8 March, has agreed to purchase up to 22.8% and will resume buying in the market.
Gross spread is 1.1%. I’d be long in case the Bain’s consortium improves Triton’s offer, which may depend on the additional debt than private members of Bain’s consortium could afford.

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Mar 10

Daily Brief Event-Driven: The March BOJ Meeting and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

The March BOJ Meeting, April Handover, the Japan Post Bank (7182) Offering, and Follow-On
Dai Nippon Printing (7912) – Whoop There It Is! ¥100bn Buyback in a Year, ¥300bn in 3yrs
MSCI Korea May Review: Two New Names Are Emerging for Inclusion
StubWorld: Swire Pac/Prop & Cathay FY22 Results
Piedmont Lithium: General Mosquito & “Textbook Corruption”
Yashili (1230 HK): It’s Taken a While – Pre-Condition Satisfied
Hosokawa Micron (6277 JP) – Big Accretive Cross-Holder Share Buyback
Yashili (1230 HK): China Mengniu’s Scheme Triggered
Itaú Unibanco Offer for Itaú Corpbanca Minorities; Good Value or Value Trap?

The March BOJ Meeting, April Handover, the Japan Post Bank (7182) Offering, and Follow-On

Tomorrow is BOJ Governor Kuroda’s last Monetary Policy Meeting, capping a ten year run as one of the most dynamic central bankers in the world.
Tomorrow is also the day BEFORE the first day on which the Japan Post Bank (7182 JP) mega offering could price and the last day of bookbuild indications.
I am not saying this is not coincidence, but it is worth thinking about the interplay.

Dai Nippon Printing (7912) – Whoop There It Is! ¥100bn Buyback in a Year, ¥300bn in 3yrs

Elliott Management was noted several weeks ago to have bought near 5% of Dai Nippon Printing (7912 JP). The stock popped when people found out.
Then the stock popped when the company said they’d announce the outline for their new Mid-Term Management Plan on 9 March, and that would include more capital allocation measures.
Today we got the Outline. There are more capital allocation measures. The numbers look big. Nuance is required to understand the impacts over time.

MSCI Korea May Review: Two New Names Are Emerging for Inclusion

Two new names have emerged as likely candidates for inclusion in Korea: SM Entertainment and Cosmo Advanced Materials, whose YTD returns are approximately 104% and 83%, respectively.
For SM Entertainment, the float rate may be adjusted downward depending on the tender offer results. Still, even if modified to 50%, it will surpass the float market cap hurdle.
Cosmo still has a significant gap in the full market cap. However, we should note that the recent insane rally in Korea’s EV battery sector shows no signs of ending.

StubWorld: Swire Pac/Prop & Cathay FY22 Results

There were some positive takeaways from Swire stable’s set of FY22 accounts; however, the Hong Kong office segment faces increased vacancy rates, and new supply in 2023.
Preceding my comments on Swire 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%.

Piedmont Lithium: General Mosquito & “Textbook Corruption”

Short seller Blue Orca is alleging Atlantic Lithium (ALL LN) is seeking to obtain a Ghanaian lithium mining licence via “textbook corruption”.
Piedmont Lithium (PLL AU) is a substantial shareholder of Atlantic, together with a co-development agreement for the Ghanaian project, in which the mining license has yet to be ratified.
Orca reckons the license ratification will fail the corruption sniff test, which in turn will jeopardise the Tennessee lithium offtake facility, currently awaiting a DOE grant.

Yashili (1230 HK): It’s Taken a While – Pre-Condition Satisfied

Yashili International Holdings (1230 HK) announced that the pre-condition is satisfied – around 10 months since the 6 May 2022 announcement of China Mengniu Dairy Co (2319 HK)’s HK$1.20 offer.
Yashili has received an extension for the despatch of the scheme document to a date no later than 31 August. We think the scheme document is despatched by early April.
The scheme risk is low. At the current price and for a late May payment, the gross and annualised spread is 2.6% and 12.2%, respectively.

Hosokawa Micron (6277 JP) – Big Accretive Cross-Holder Share Buyback

Today after the close, Hosokawa Micron (6277 JP) – a company which is all about powders and particles – announced a ToSTNeT-3 buyback of 1.35mm shares (8.26% TSO) tomorrow AM.
Nisshin Seifun Group (2002 JP) and subsidiary Nisshin Engineering said they would offer some shares in. The HM announcement said financial institutions might sell.
Hosokawa Micron is cheap, and this is accretive. Worth a closer look.

Yashili (1230 HK): China Mengniu’s Scheme Triggered

The 25% stake sale/acquisition in Yashili International (1230 HK) was expected five business days after the Dumex China Disposal – and that is what transpired. This satisfies the Scheme conditions.
After ten months, Danone (BN FP) offloaded its chilled dairy business, acquired Yashili’s Dumex China baby formula ops, and offloaded its 25% stake in Yashili to China Mengniu (2319 HK).
Now Yashili minority shareholders will get their chance to vote for China Mengniu’s Scheme, potentially in early May.

Itaú Unibanco Offer for Itaú Corpbanca Minorities; Good Value or Value Trap?

By Victor Galliano

At first sight, Itaú Unibanco’s offer for the minorities of Itaú Corpbanca is great value for Itaú Unibanco shareholders, but we do not believe that this is so clear cut
In Chile, Itaú Corpbanca is addressing its scale issue through cost control and its digital banking strategy; Colombia is more of a challenge, not helped by President Petro’s anti-business attitude
We see this as a fair offer for Itaú Corpbanca shareholders, given the drag from Colombia; yet it needs a successful Colombia disposal to create value for Itaú Unibanco shareholders

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Mar 09

Daily Brief Event-Driven: Link REIT (823) – Nil Paid Rights Start Trading Tomorrow – The Trades and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Link REIT (823) – Nil Paid Rights Start Trading Tomorrow – The Trades
Sosei Group (4565 JP) TSE Prime Promotion and TOPIX Inclusion… Finally
Meritz Merger Approved: Let’s Now Discuss Key Dates & Entry Points For LONG DGB Financial
HYBE: May Be Seeking to Raise As Much as 1 Trillion Won (Will Investors Support This Plan)?
HSCEI Dividend Futures: Fair Value Estimates as Result Season Looms
Sabana REIT (SSREIT SP): Volare’s Partial Offer Unconditional
Hong Kong CEO & Director Dealings (9 Mar): Lenovo, CLP Holdings, GoFintech, North Asia Strategic

Link REIT (823) – Nil Paid Rights Start Trading Tomorrow – The Trades

In early February, Link REIT (823 HK) announced it would do a 1 for 5 rights offering, with the Exercise Price well below TERP.
The REIT units dropped in price as the already unlevered REIT was not seen to be needing further deleverage and early debt repayment in a rising rate environment.
Units went ex-Rights on 24 February. The rights start trading tomorrow. That means flows. Of multiple kinds. Worth thinking about.

Sosei Group (4565 JP) TSE Prime Promotion and TOPIX Inclusion… Finally

Sosei Group (4565 JP) is a Tokyo-based biopharma group which started small, got big and exciting, and hasn’t grown in market cap in years, while it has grown in ambition.
It has strategic relationships with AbbVie, Biohaven, Genentech, GSK, Takeda, Pfizer, AstraZeneca, and Takeda and a market cap near ¥200bn.
It has always had impressive shareholder support. Now after nearly 20 years on TSE Mothers/Growth (the limit was supposed to be 10yrs), it moves to TSE Prime and TOPIX.

Meritz Merger Approved: Let’s Now Discuss Key Dates & Entry Points For LONG DGB Financial

K200 ad hoc change announcement date should be March 30 as the buyback ends on March 28, and rebalancing trading should occur on March 31.
From a juice-level perspective, the entry point and timing for JB Financial showed much better performance from EGM approval rather than the announcement.
We should consider gradually building up positions from this point until March 30 announcement or one day after (T-1 effective) while utilizing Kodex Banks ETF to hedge our long positions.

HYBE: May Be Seeking to Raise As Much as 1 Trillion Won (Will Investors Support This Plan)?

In the last few days, there have been local media accounts that mentioned that HYBE may be seeking as much as 1 trillion won (US$760 million) from investors.
The more likely scenario is that HYBE encounters a greater backlash from the global investors in its attempts to raise nearly 1 trillion won.
We maintain our existing stance of Kakao eventually winning this M&A battle for the controlling stake in SM Entertainment.

HSCEI Dividend Futures: Fair Value Estimates as Result Season Looms

The HSCEI 2023 dividend futures have moved up over the last few months though there was a sharp move lower in the last couple of weeks.
With results and dividends scheduled to be announced in the next few weeks, we take a look at the fair value estimate for the 2023 dividend futures.
We also list out the things to watch for over the next few weeks and months that could impact the 2023 dividend futures and the 2023/24 dividend steepener.

Sabana REIT (SSREIT SP): Volare’s Partial Offer Unconditional

Sabana Industrial REIT (SSREIT SP)’s partial offer from Volare of S$0.4504 per unit (S$0.465 in cash – S$0.0146 2H2022 distribution) is now unconditional. The final closing date is 24 March.
On the assumption that ESR Cayman and Quarz Capital did not tender, acceptances representing 16.16% of outstanding units imply current proration is 61.87%.
Based on the current proration of 61.87% and at the last close price of S$0.420 per unit, the breakeven price is S$0.373 per unit.

Hong Kong CEO & Director Dealings (9 Mar): Lenovo, CLP Holdings, GoFintech, North Asia Strategic

The data in this insight is collated from the “shareholding disclosure” link on the HKEx website.
Often there is a corresponding HKEx announcement on the increase – or decrease – in the shareholding by directors. Or pledging. However, such disclosures are by no means an absolute.
Stocks mentioned include Lenovo (992 HK), CLP Holdings (2 HK), GoFintech (290 HK), and North Asia Strategic Holdings (8080 HK).

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Mar 08

Daily Brief Event-Driven: HSI and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

HSI, HSCEI, HSTECH: Rebalance Flows Post Capping (March 2023)
ANA and NYK to Trade NCA, So JAL/ANA GTG
TOPIX Inclusions: Who Is Ready (Mar 2023)
K-Pop Battle, Round 2: Kakao’s Tender Offer For S.M. Entertainment
InvoCare (IVC AU): TPG’s A$12.65/Share NBIO
Olam Group (OLG SP): EGM on 29 March Another Step to Realize Value
InvoCare (IVC AU): TPG’s Non-Binding Offer
Tencent Meituan Dividend – The US$17bn Overhang Is Almost Here – Lesson from JD.com
Doosan Bobcat: Block Deal Sale of 4.8% of Outstanding Shares
Meituan (3690 HK): Tencent’s In-Specie Div Settles in Two Weeks

HSI, HSCEI, HSTECH: Rebalance Flows Post Capping (March 2023)

The March rebalance of the HSI, HSCEI and HSTECH indices will use today’s closing prices to cap the index constituent weights at 8%. This will lead to large flows.
The largest inflows will be on Li Auto (2015 HK), Meituan (3690 HK), XPeng (9868 HK), JD.com (9618 HK), Alibaba (9988 HK), BYD (1211 HK) and Kuaishou Technology (1024 HK).
The largest outflows will be on Tencent (700 HK), HSBC Holdings (5 HK), Baidu (9888 HK), Xiaomi Corp (1810 HK), NetEase (9999 HK), CNOOC (883 HK) and SMIC (981 HK).

ANA and NYK to Trade NCA, So JAL/ANA GTG

ANA announced their FY23-25 Mid-Term Corporate Strategy last month. In it, a plan to increase cargo.
Today, Ana Holdings (9202 JP) and Nippon Yusen Kk (9101 JP) announced ANA would take over NYK sub Nippon Cargo Airlines 1 October 2023 – price and method TBD.
This would add ~45-50% to ANA’s cargo volume, and more to its capacity. But it means NYK sells cheap OR it means a chunk of ANA cash/stock. Overhang.

TOPIX Inclusions: Who Is Ready (Mar 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.
In February, names which appeared in our “B” list such as Amvis Holdings Inc (7071 JP) and AXXZIA Inc (4936 JP) announced they would be moving to the Prime Market.
In this insight, we take a look at updated lists, the price performance history of those baskets, and other interesting trades in the TOPIX index space.

K-Pop Battle, Round 2: Kakao’s Tender Offer For S.M. Entertainment

Fresh after the courts rejected new share issuance, Kakao (035720 KS) has launched an Offer for S.M.Entertainment (041510 KS), less than a week after HYBE (352820 KS)‘s deal closed.
Kakao, holding 4.9%, is seeking to lift its stake to ~40% via a tender offer at ₩150,000/share, a 25% premium to HYBE’s offer price.
The key question is – will HYBE counter? I would not be so sure.

InvoCare (IVC AU): TPG’s A$12.65/Share NBIO

Invocare Ltd (IVC AU) has received an unsolicited, preliminary, non-binding indicative offer from TPG Global to acquire the company at A$12.65/share in cash.
TPG has also acquired 17.8% of the shares in Invocare Ltd (IVC AU) via a combination of stock and derivatives.
With the company now in play, there could be competing offers. Already owning 17.8% of the company, TPG is now invested in ensuring they gain control.

Olam Group (OLG SP): EGM on 29 March Another Step to Realize Value

Olam Group (OLG SP) has despatched the EGM circular to get shareholder approval for the next step in the restructuring exercise to unlock value – Olam Agri IPO.
The Olam Agri IPO through a dual primary listing (SGX ST and Saudi Arabia) involves a primary (IPO shares are 20% of enlarged shares) and secondary (25% vendor sale) offering.
The EGM marks a key step in the strategy to unlock value. Our SoTP valuation is S$2.13 per share, which is a 28% upside to the last close price.

InvoCare (IVC AU): TPG’s Non-Binding Offer

PE outfit TPG has taken a 17.8% stake in InvoCare Ltd (IVC AU), Australia’s leading funeral services provider, and also pitched a A$12.65/share non-binding indicative Offer via a Scheme.
The Indicative proposal is subject to the completion of satisfactory due diligence, and FIRB.
InvoCare, which has struggled to generate consistent profits in recent years, is mulling the proposal. Pricing is around the Covid cliff.

Tencent Meituan Dividend – The US$17bn Overhang Is Almost Here – Lesson from JD.com

By Sumeet Singh

On 16th Nov 22, post-market close, along with its 3Q22 results Tencent declared an interim dividend by way of distribution in specie of Class B Ordinary shares of Meituan.
At the time of declaration, the dividend amounted to US$20bn or 15.5% of Meituan’s outstanding shares. Its value has since declined to US$17bn.
In this note, we talk about the implications of the deal and what one can glean from looking at the previous dividend payout for JD.com.

Doosan Bobcat: Block Deal Sale of 4.8% of Outstanding Shares

On 7 March, Doosan Bobcat announced a block deal sale of 4.87 million shares, representing 4.8% of outstanding shares. The block deal discount range is from 6.11% to 8.03%.
We have a Negative view on this block deal sale and we continue to have a Negative view on Doosan Bobcat’s shares.
There are visible signs of the construction sector slowdown in North America and Europe driven by higher interest rates, housing price declines, and decline in the residential/commercial construction markets.

Meituan (3690 HK): Tencent’s In-Specie Div Settles in Two Weeks

From the time of Tencent (700 HK) announcement of the in-specie dividend, Meituan (3690 HK) has underperformed Tencent (700 HK) and Alibaba Group (9988 HK) by around 35%.
Surprisingly, short interest on Meituan (3690 HK) has dropped in the last few months as the stock has continued to drop.
As with JD.com Inc. (9618 HK), Prosus (PRX NA) could sell Meituan (3690 HK) in the months following settlement. Or they could remove the overhang by placing a block.

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Mar 07

Daily Brief Event-Driven: Adani Family Sells Stakes To GQG and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Adani Family Sells Stakes To GQG
Long Short Setup Candidate: Posco Holdings & Celltrion with TIGER Top 10 Rebalancing
KOSDAQ150 Index Rebalance Preview: Potential Adds Outperform Deletes by 50% in 4 Months, EXIT!
Ihara Science (5999 JP) – Not Over But Not a Great Look
InvoCare (IVC AU): TPG Capital Makes a Move
Japan Post Bank Placement – Misbehaving – Still Has Time to Correct – A Look at past Deals
Kakao Announces a Tender Offer of SM Entertainment at 150,000 Won Per Share
Kakao’s Tender Offer to SM Ent Shareholders: Key Details of Disclosure Filed This Morning
YES Bank Lock-Up Expiry: Forced Sellers, Overhang & Index Implications

Adani Family Sells Stakes To GQG

Late Thursday night, the Adani Group announced that the family entities had sold Rs 154bn or US$1.8bn+ of stock in four listed entities to Australian-listed GQG Partners (GQG AU).
GQG is a US$90bn AUM asset manager specialising in emerging markets. They bought stakes of 2.55-4.10% in each of four entities.
This “increases” float, but doesn’t. As of now, this will partially offset one MSCI downweight in May, and will likely cause three FIF uplifts.

Long Short Setup Candidate: Posco Holdings & Celltrion with TIGER Top 10 Rebalancing

Celltrion and Posco Holdings will switch places. Although there is still time until the screening period, the market capitalization gap between them has already widened significantly.
Posco Holdings will likely welcome a passive inflow of 0.44x ADTV, whereas Celltrion is expected to face outflows of around 0.69x ADTV.
Ecopro BM entered the Top 20 (preliminary screening table) with a YTD stock price increase of 130%, becoming the first KOSDAQ-listed company to do so.

KOSDAQ150 Index Rebalance Preview: Potential Adds Outperform Deletes by 50% in 4 Months, EXIT!

Two thirds of the way through the review period for the June rebalance, we see 9 potential changes to the KOSDAQ 150 Index (KOSDQ150 INDEX).
One-Way turnover is estimated at 3.5%. Impact on the expected deletions is a lot higher than the impact on the expected inclusions and shorts are building up on the deletes.
Since the start of the review period, the potential inclusions have outperformed the potential deletions by nearly 50% and the KOSDAQ 150 Index (KOSDQ150 INDEX) by over 20%.

Ihara Science (5999 JP) – Not Over But Not a Great Look

Today after the close, Ihara Science (5999 JP) reported on TDNet a forthcoming change in the Tender Offer Registration Statement by MBO bidder N.I.M.
N.I.M. and normally-known-as-deep-value-activist NAVF (a.k.a. Nippon Active Value Fund), Ihara Science’s #2 shareholder, signed a Tender Offer Agreement whereby NAVF agreed to tender.
It got a little more complicated 90mins later, but this was an announcement which did not need to be made. It begs the question of why. And what next.

InvoCare (IVC AU): TPG Capital Makes a Move

AFR reports that TPG Capital, through UBS, is seeking to acquire 14.4m or 10.00% of Invocare Ltd (IVC AU)‘s outstanding shares at A$12.65, a 41.3% premium to the undisturbed price.
If the aftermarket raid is successful, TPG will follow the tried-and-test private equity playbook of securing a pre-bid stake before lobbing a non-binding offer at A$12.65 per share
TPG has timed its move to take advantage of the post-results price slump. While not a knockout offer, it is a starting point for the Board to secure better terms.

Japan Post Bank Placement – Misbehaving – Still Has Time to Correct – A Look at past Deals

By Sumeet Singh

Japan Post Holdings (6178 JP) plans 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 past note, Japan Post Bank Placement – Deal Structure, past Deals, Index, Buyback.
In this note, we talk about the updates since our last note and have a look at some of the past deals.

Kakao Announces a Tender Offer of SM Entertainment at 150,000 Won Per Share

On 7 March, Kakao Corp (035720 KS) announced a tender offer of up to 35% of outstanding shares of SM Entertainment at 150,000 won per share.
We believe that this will be a successful tender offer and the share price of SM Entertainment is likely to surge to near 150,000 won per share.
The minority shareholders of SM Entertainment are cheering on as its share price appreciation will be nearly 96% from end of 2022 to the tender offer price of 150,000 won.

Kakao’s Tender Offer to SM Ent Shareholders: Key Details of Disclosure Filed This Morning

Kakao and Kakao Entertainment each plan to purchase 4.167 million shares at ₩150,000 per share, totaling 8.33 million. This is a 14.5% premium to the last close.
The tendering ending date is March 26th, Sunday, so the actual ending date is March 24th. Since Korea adopts the T+2 settlement system, stocks must be purchased by the 22nd.
The price of SM may decline towards below the tender price relatively quickly as a large number of retail investors will likely bet on the prolonged proxy battle.

YES Bank Lock-Up Expiry: Forced Sellers, Overhang & Index Implications

The lock-up on nearly 9.4bn shares of Yes Bank (YES IN) expires on 13 March. Most of that is from the banks that helped in the recapitalisation in March 2020.
There will be forced sellers as soon as the lock-up ends, and there will be other sellers that will want to sell.
The forced and discretionary selling will be offset to a very small extent by inflows from passive trackers in May/June as the free float for the stock increases.

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Mar 06

Daily Brief Event-Driven: Northbound Stock Connect Expansion: List Announced; Potential MSCI Adds in May and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Northbound Stock Connect Expansion: List Announced; Potential MSCI Adds in May
KOSPI Size Indices – Changes in March & Implications
OZ Minerals (OZL AU): Scheme Meeting in April; Potential S&P/ASX Changes
Merger Arb Mondays (06 Mar) – HKBN, Yashili, OZ Minerals, Nitro, Tyro, Golden Energy, GK Goh

Northbound Stock Connect Expansion: List Announced; Potential MSCI Adds in May

HKEX (388 HK) has announced that the expansion of Northbound Stock Connect eligible stocks will take effect from the start of trading on 13 March.
598 stocks listed on the Shanghai Stock Exchange and 436 stocks listed on the Shenzhen Stock Exchange will be added to Northbound Stock Connect.
Currently, we see 43 stocks being added to the MSCI China Index in May (inflows of US$1.42bn), further increasing China’s weight in the MSCI Emerging Markets Index.

KOSPI Size Indices – Changes in March & Implications

There are 5 migrations from MidCap to LargeCap, 4 LargeCap to MidCap, 3 new additions to MidCap, 9 SmallCap to MidCap, 11 MidCap to SmallCap, 3 new additions to SmallCap.
The migrations from SmallCap to MidCap have outperformed the stocks migrating between other segments by a huge margin over the last few months.
Given the huge outperformance and looking at how the migrations have performed historically, we’d expect the stocks migrating to MidCap to underperform post implementation of the changes.

OZ Minerals (OZL AU): Scheme Meeting in April; Potential S&P/ASX Changes

The OZ Minerals (OZL AU) Scheme Meeting for the acquisition by BHP Group (BHP AU) will be held 13 April. The stock could stop trading post close on 18 April.
OZ Minerals Ltd (OZL AU) is a member of the S&P/ASX100 Index and S&P/ASX 200 (AS51 INDEX) so there will be replacements made at the close on 18 April.
Passive trackers will need to buy a fair amount of stock (with a decent impact) on the potential inclusions and the stocks could outperform over the next few weeks.

Merger Arb Mondays (06 Mar) – HKBN, Yashili, OZ Minerals, Nitro, Tyro, Golden Energy, GK Goh

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),Alliance Aviation Services (AQZ AU), 111 Inc (YI US), Toyo Construction (1890 JP), Origin Energy (ORG AU), HKBN Ltd (1310 HK), Jiangnan (1366 HK)
Lowest spreads – Ihara Science (5999 JP), Nitro Software Ltd (NTO AU), GK Goh Holdings (GKG SP), Boustead Projects (BOCJ SP), Techno Associe (8249 JP), Nissin Electric (6641 JP).

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Mar 05

Daily Brief Event-Driven: Nikkei 225 Sep 2023 PREVIEW – Lasertec and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Nikkei 225 Sep 2023 PREVIEW – Lasertec, Toshiba, Nitori, Maybe Zozo
Index Rebalance & ETF Flow Recap: NKY, HSCEI, HSTECH, STAR50, MVIS, Japan Post Bank, Adani, KRX BBIG
CPSE / BHARAT22 / CNXBANK Index Rebalance Preview: Capping Changes in March
Golden Energy (GER SP): The Disconnect Between the Offer and Underlying Assets
Last Week in Event SPACE: Japan Post/Japan Post Bank, Downer, HKBN, Golden Energy
Korean Court Rules Against SM Entertainment From Issuing New Shares to Kakao
OZ Minerals (OZL AU): Scheme Meeting on 13 April
S&P/ASX Index Rebalance (Mar 2023): Big Impact Changes as Adds Outperform Deletes
(Mostly) Asia-Pac Weekly Risk Arb Wrap: Slater & Gordon; SHL Japan, GK Goh, Nitro Software, Yashili
Quiddity Flow Expectations for DAX Mar 23 Rebal: WUW GR Vs SDAX Seems Interesting

Nikkei 225 Sep 2023 PREVIEW – Lasertec, Toshiba, Nitori, Maybe Zozo

The March 2023 Nikkei 225 Review was announced Friday. Discussion is in Nikkei 225 March 2023 Review – OLC, JAL, Renesas IN.
That means a Sep-2023 preview. ADDs: Lasertec (6920), Toshiba (6502), and Nitori (9843). DELETEs: Nippon Sheet Glass (5202), Mitsui E&S (7003), and Matsui Securities (8628).
Zozo (3092) is a possible alternate add to Toshiba on a sector balance basis if Toshiba’s disposition changes in the interim.

Index Rebalance & ETF Flow Recap: NKY, HSCEI, HSTECH, STAR50, MVIS, Japan Post Bank, Adani, KRX BBIG

The MSCI Feb QCIR was implemented on Tuesday and there were a bunch of announcements for other indices from Wednesday to Friday.
The implementation of the March rebalance for the Hang Seng family of indices and the SSE STAR50 (STAR50 INDEX) take place at the close on Friday.
Redemptions continue on IShares Edge MSCI Min Vol Emerging Markets ETF (EEMV US) and KraneShares CSI China Internet ETF (KWEB US).

CPSE / BHARAT22 / CNXBANK Index Rebalance Preview: Capping Changes in March

The BHARAT 22 ETF (ICICIB22 IN) will rebalance on 17 March while the CPSE ETF (CPSEBE IN) and Nifty Bank Index (NSEBANK INDEX) will rebalance on 29 March.
There are no constituent changes for the indices in March but there will be capping changes for the stocks and there is a reasonable impact on some stocks.
There are stocks that will have opposing flows on the two days, while there are some stocks that will have same way flows from passive trackers.

Golden Energy (GER SP): The Disconnect Between the Offer and Underlying Assets

Golden Energy & Resources (GER SP)’s update notes that the Widjaja family’s offer remains conditional on Indonesian regulatory, Dian Swastatika Sentosa (DSSA IJ) shareholder and SGX circular approval.
There are four issues – an unattractive distribution cash alternative, a decline in Golden Energy Mines (GEMS IJ) shares, unfavourable FX and an increase in Stanmore Coal (SMR AU) shares.
The offer remains light. A “fair” delisting price is around S$0.40 (vs S$0.16 current delisting price) and would imply an all-cash offer of S$1.074, 19% above the last close.

Last Week in Event SPACE: Japan Post/Japan Post Bank, Downer, HKBN, Golden Energy

Big picture: Japan Post (6178 JP) selling 29% of Japan Post Bank (7182 JP) is a Very Big Offering at ¥1.236trln. 80/20 dom/international. A TOUGH sell. 1.089bn shares is 4x float.
Downer EDI (DOW AU)‘s CEO resigned ahead of announcing accounting irregularities last December. The CFO resigned this week after Downer announced another profit downgrade. Now the chairman is exiting.
Hong Kong broadband play HKBN Ltd (1310 HK)said it has been approached by I Squares’ HGC. No pricing announced, but talks continue.

Korean Court Rules Against SM Entertainment From Issuing New Shares to Kakao

On 3 March, it was announced that a Korean court has ruled against SM Entertainment from issuing new shares and CB to Kakao Corp (035720 KS).
HYBE’s tender offer period ended on 1 March. It is highly unlikely for HYBE to have successfully completed the tender offer reaching the entire 25% of outstanding shares.
We maintain our position of a high probability of Kakao initiating its own tender offer of SM Entertainment shares in the coming weeks at about 140,000/150,000 won or more.

OZ Minerals (OZL AU): Scheme Meeting on 13 April

The IE considers BHP Group Ltd (BHP AU)’s A$28.25 offer for OZ Minerals Ltd (OZL AU) to be fair and reasonable as it is within its valuation range of A$27.37-30.47.
Copper prices and peers’ share prices have risen since the deal announcement. The IFA address perky copper prices by using reasonable long-term copper prices to value the assets.
This is done with no hint of a competing bid. At last close price and for the 2 May payment, the gross and annualised spread is 0.9% and 6.1%, respectively.

S&P/ASX Index Rebalance (Mar 2023): Big Impact Changes as Adds Outperform Deletes

There is one change for the ASX20, two for the ASX100, four for the S&P/ASX 200 INDEX and 12 adds/ 9 deletes for the ASX300 Index at the March rebalance.
There will be between 7-20 days of ADV to trade on the ASX100 and ASX200 adds while the impact on the deletions is between 1-11 days of ADV.
The adds have outperformed the deletes on all indices over the last few months. Short interest has jumped on a lot of the large deletes.

(Mostly) Asia-Pac Weekly Risk Arb Wrap: Slater & Gordon; SHL Japan, GK Goh, Nitro Software, Yashili

There are 46 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
Three new deals were discussed on Smartkarma this past week: Slater & Gordon (SGH AU)‘s off-market Offer; SHL Japan Ltd (4327 JP)‘s MBO/LBO; and GK Goh Holdings (GKG SP)‘s MBO.
Key updates took place for Nitro Software Ltd (NTO AU), Yashili International Holdings (1230 HK), Halcyon Agri (HACL SP), and Golden Energy & Resources (GER SP).

Quiddity Flow Expectations for DAX Mar 23 Rebal: WUW GR Vs SDAX Seems Interesting

The March 2023 index changes for the DAX index family were confirmed after the close on Friday 3rd March 2023.
There will be one change for DAX, two for MDAX, and two for SDAX mostly in line with our expectations. Separately, there is also a change in TecDAX.
In this insight, we take a closer look at our expectations for index flows and the recent price and volume performance of the names involved in the index rebalance event.

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Mar 04

Daily Brief Event-Driven: Nikkei 225 Index Rebalance: Oriental Land and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Nikkei 225 Index Rebalance: Oriental Land, Renesas, JAL IN; Toyobo, Nippon LightMetal, Toho Zinc OUT
Nikkei 225 March 2023 Review – OLC, JAL, Renesas IN.
Yashili (1230 HK): Mengniu Offer Imminent As Key Sale Concludes
Quiddity ASX Rebal Mar 23: Good Hit Rate, Some Short Buildup, Decent Impact
Yashili (1230 HK): Pre-Condition Satisfaction Likely Within 5 Business Days
UnitedHealth/EMIS: Estimated Calendar, Spread

Nikkei 225 Index Rebalance: Oriental Land, Renesas, JAL IN; Toyobo, Nippon LightMetal, Toho Zinc OUT

Oriental Land (4661), Renesas Electronics (6723) and Japan Airlines (9201) will replace Toyobo (3101), Nippon Light Metal (5703) and Toho Zinc (5707) in the Nikkei 225 (NKY INDEX).
Oriental Land (4661 JP) has been added at a post-split PAF of 1. This reduces the passive buying on the stock by around a third.
Passive trackers need to buy between 2.2-6.7 days of ADV on the adds while selling between 5-12 days of ADV on the deletes. There’s a big funding trade too.

Nikkei 225 March 2023 Review – OLC, JAL, Renesas IN.

As expected, Oriental Land (4661 JP), Renesas Electronics (6723 JP), Japan Airlines (9201 JP) IN, and Toyobo (3101 JP), Nippon Light Metal (5703 JP), Toho Zinc (5707 JP) OUT.
The Nikkei implemented the “Tricky Twist” discussed. This lowers the total amount to buy on Oriental Land vs what many would have expected.
That’s “disappointing” BUT… the behavioural aspects here are really interesting, and the timetable for the event is worth thinking about.

Yashili (1230 HK): Mengniu Offer Imminent As Key Sale Concludes

Yashili International Holdings (1230 HK) has announced that the disposal of Dumex China to Danone SA (BN FP) has been completed.
This satisfies the second of three SPAs announced last May, leaving the sale of Danone’s 25% stake in Yashili to China Mengniu Dairy Co (2319 HK) outstanding.
This stake sale should conclude next week, to be followed by the launch of the Scheme later this month, early next.

Quiddity ASX Rebal Mar 23: Good Hit Rate, Some Short Buildup, Decent Impact

The index changes for the ASX Index family for the March 2023 Rebalance were announced after the close on Friday 3rd March 2023.
There will be one, two, and four changes for ASX 20, ASX 100, and ASX 200 indices, respectively. There will also be 12 ADDs and 9 DELs for ASX 300.
In this insight, we take a closer look at our expectations for index flows, short interest, and recent price performance of the names involved in the rebalance event.

Yashili (1230 HK): Pre-Condition Satisfaction Likely Within 5 Business Days

Yashili International Holdings (1230 HK) announced that the Dumex China Disposal was completed. The completion will result in the satisfaction of the last pre-condition, likely within five business days.
China Mengniu Dairy Co (2319 HK)’s offer is HK$1.20 per share. Due to the upcoming release of full-year results, the scheme document will be likely despatched by early April.
This is a done deal and timing is the key risk. At the current price and for a late-May payment, the gross and annualised spread is 2.6% and 11.3%, respectively.

UnitedHealth/EMIS: Estimated Calendar, Spread

A CMA’s Phase One investigation period began on 23 January to investigate whether the deal may result in a substantial lessening of competition. Deadline for the decision is 17 March.
EMIS anticipates closing late Q1/early Q2 2023. The Permitted Final Dividend amounts to 21.1p. No final dividend has yet been declared, although theoretically it could happen around 17 March.
Spread is 2.96%/29.39% (gross/annualised), assuming settlement by 15 April, as good as it gets for a stock with an average daily turnover of c.GBP7 million in the European space.

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Mar 03

Daily Brief Event-Driven: Adani Group: GQG Bets Big; MSCI Index Impacts and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Adani Group: GQG Bets Big; MSCI Index Impacts
MBK & Unison Capital Trying to Take Osstem Implant Private: “Two Yards to Endzone”
SHL Japan (4327 JP) Takeover – Illiquid, Easy, Non-Transparent, but a Done Deal
SIAS Agrees The Widjaja Family’s Offer For Golden Energy Is Low-Balled
IMM PE Lanches A Tender Offer on Hanssem
Nitro Software Backs Potentia’s Offer
SE600 Mar 23 Rebal: Final Changes and Historical Performance Analysis

Adani Group: GQG Bets Big; MSCI Index Impacts

Post market close yesterday it was announced that GQG Partners (GQG AU) had invested INR 154.46bn (US$1.87bn) in four Adani Group companies via block deals.
The blocks were at a discount of 4.3% for Adani Ports & Special Economic Zone (ADSEZ IN) to 12.2% for Adani Enterprises (ADE IN).
There will be an increase in the free float for some Adani Group companies as a result of the blocks and there are implications for the stocks in indexes.

MBK & Unison Capital Trying to Take Osstem Implant Private: “Two Yards to Endzone”

MBK Partners and Unison Capital are trying to take Osstem Implant (048260 KS) private. Currently, it is estimated that the MBK/Unison consortium has secured 88.7% stake in Osstem Implant.
In the case of companies listed in KOSDAQ, if you have a stake of 90% or more, the company can generally proceed with discussions on delisting with the exchange.
There is a high probability of delisting sometime in March/April under two different scenarios. The second scenario offers the remaining minority shareholders and arb traders potential for further alpha creation.

SHL Japan (4327 JP) Takeover – Illiquid, Easy, Non-Transparent, but a Done Deal

The parent company of SHL Japan Ltd (4327 JP)‘s largest shareholder is buying out its main customer in Japan.
This is an LBO/MBO situation, and friends and family get it to 63% or so. A tiny sliver from others gets it over the hump.
Should get done easily, but the corporate governance here is not encouraging. Yes, a premium, but no explanation, and it’s a bit low.

SIAS Agrees The Widjaja Family’s Offer For Golden Energy Is Low-Balled

The Widjaja family’s Offer for Golden Energy (GER SP) back in November has been derided in the press, one outspoken minority shareholder, and (a loosely veiled statement) by Singapore RegCo.
Now the Securities Investors Association (Singapore) (SIAS) has thrown its hat into the ring and has called on GEAR to improve the Offer for shareholders.
The long stop date was surprisingly pushed back five months to satisfy the Exit offer conditions. This delay should avail the family of ample time to bump terms.

IMM PE Lanches A Tender Offer on Hanssem

IMM private equity fund launched a tender offer on Hanssem Co Ltd (009240 KS) and its share price surged by 19.7% to reach 53,700 won today.
IMM is currently the largest shareholder in Hanssem with a 27.7% stake in the company. IMM’s stake in Hanssem will rise to about 36% if this tender offer is successful.
Hanssem’s share price still 2.4% below the tender offer price of 55,000 won. In the coming days, we believe the share price will reach closer to the tender offer price.

Nitro Software Backs Potentia’s Offer

As expected, Nitro Software Ltd (NTO AU)‘s board has unanimously backed Potentia’s three-tiered revised Offer.
On the 23rd of February, Potentia bumped with a $2.17/share unconditional Offer, increasing to $2.20 if they get to 75% interest, and $2.25 if ≥25% tendering opt for scrip.
Where does this leave Alludo? Nitro reckons Alludo can’t raise their offer because of ASIC’s Truth In Takeovers policy. But Alludo do pocket the A$5mn break fee for their troubles.

SE600 Mar 23 Rebal: Final Changes and Historical Performance Analysis

The March 2023 regular rebalance index changes for the SE600 index and the EUROSTX index were announced yesterday.
There are 8 ADDs/DELs for the SE600 index and 5 ADDs and 2 DELs for the EUROSTX index.
In this insight, we take a closer look at the index flow expectations and the historical performance of SE600 and EUROSTX Rebalance events.

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Mar 02

Daily Brief Event-Driven: China Vanke (2202 HK): Placement & Index Flows and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

China Vanke (2202 HK): Placement & Index Flows
HKBN Ltd (1310 HK) Mulls I Square’s HGC Offer
SET50 Index Rebalance: SAWAD Added; Buying at the Close Today
SHL-Japan (4327 JP): JPY3,550 Tender Offer from SHL Group
Sweden’s EQT to Acquire a 68% Stake in SK Shieldus – Positive Impact on SK Square
Downer EDI: In Need Of A “Culture Reset”
Quiddity Final Predictions for UK F100/250 March 2023 Regular Review & Other Intra-Review Changes
Appreciate Group/Paypoint: Completion
Selected European Holdcos and DLC: February‘23 Report

China Vanke (2202 HK): Placement & Index Flows

News reports indicate that China Vanke (H) (2202 HK) is looking to place 300m shares at a price range of HK$12.93-13.20/share to raise around US$500m.
The 300m shares is nearly 33 days of ADV, but around 11-12% of the new shares will be bought by passive trackers early next week and provide near-term support.
China Vanke (H) (2202 HK) trades cheaper than its peers on EV/Sales, EV/EBITDA and forward PE. Shorts have ticked higher in the last couple of weeks.

HKBN Ltd (1310 HK) Mulls I Square’s HGC Offer

Reportedly (Bloomberg) Hong Kong broadband play HKBN Ltd (1310 HK) has received a takeover offer from I Square’s HGC Global Communications.
HKBN’s shares were halted in the late afternoon trading session yesterday after gaining 11.6%. The reason stated for the suspension was “possible inside information“, not pursuant to the Takeovers Code.
Last May, Bloomberg reported that KKR, PAG, and Stonepeak – amongst others – were considering bids for HKBN. The market cap at the time was US$1.6bn versus US$934mn now.

SET50 Index Rebalance: SAWAD Added; Buying at the Close Today

Srisawad Power 1979 (SAWAD TB) has been added to the SET50 INDEX following the Total Access Communication (DTAC TB) / True Corp Pcl (TRUE TB) merger.
Passive SET50 INDEX trackers will need to buy 9.7m shares (THB 534m; 1x ADV) of Srisawad Power 1979 (SAWAD TB) at the close of trading today.
There could be two more changes in June with relatively new listings, Thai Life Insurance (TLI TB) and Betagro (BTG TB), being added to the SET50 INDEX.

SHL-Japan (4327 JP): JPY3,550 Tender Offer from SHL Group

SHL Japan Ltd (4327 JP) has recommended SHL Group’s tender offer of JPY3,550 per share, a 32.2% premium to the undisturbed price (1 March).
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 36.62% ownership ratio.
Achieving the minimum 36.62% ownership ratio requires a 32% acceptance rate from minorities excluding irrevocables. This is not onerous as the tender price represents an all-time share price.

Sweden’s EQT to Acquire a 68% Stake in SK Shieldus – Positive Impact on SK Square

On 1 March, it was announced that Sweden’s EQT will be acquiring a 68% controlling stake in SK Shieldus (393820 KS).
EQT Partners is controlled by Sweden’s powerful Wallenberg family. EQT will invest a total amount of 2 trillion won (US$1.5 billion) in SK Shieldus.
Our NAV analysis of SK Square suggests NAV of 7.9 trillion won or NAV per share of 55,507, representing a 45% upside from current levels.

Downer EDI: In Need Of A “Culture Reset”

As per Downer (DOW AU)‘s website: “Our purpose is to create and sustain the modern environment by building trusted relationships with our customers“. They should extend that trust to shareholders.
Having already announced accounting irregularities back in December, Downer further cut profit forecasts – and interim dividend – this week. After shares cratered 24%, Downer’s CFO promptly tendered his resignation.
Allan Grey, which holds 6% in Downer, reckons the company has been inept and that a “culture reset” was in order.

Quiddity Final Predictions for UK F100/250 March 2023 Regular Review & Other Intra-Review Changes

In this insight, we take a look at Quiddity’s final predictions for index changes for UK’s F100 and F250 indices for the March 2023 Rebalance.
The index changes are likely to be confirmed after market close today and there could be more intra-review changes later this month.
In this insight, we take a look at the recent price performance of names that can potentially be involved in index changes and our flow expectations for each name.

Appreciate Group/Paypoint: Completion

On 1 March the shares of Appreciate were cancelled from AIM and the new shares of Paypoint were admitted to trading on the LSE.
In my previous insight, I mentioned that although the offer price did not seem generous and liquidity limited, the risk/reward was favourable.
In the end, shareholders saw a good opportunity to cash in after a sluggish performance since the pandemic outbreak.

Selected European Holdcos and DLC: February‘23 Report