Event-Driven

Today was the review cutoff for the June rebalance of the Yuanta/P-Shares Taiwan Top 50 ETF. We see one potential change at the review.
Passive trackers are estimated to buy nearly 6 days of ADV on Pegatron Corp (4938 TT) while selling around 1.7 days of ADV on Silergy Corp (6415 TT).
Short interest on Pegatron Corp (4938 TT) has continued to drop as the stock has moved higher; Silergy Corp (6415 TT)‘s short interest has risen as the stock has dropped.

Rakuten US$2.4bn Placement – Recent Updates and Comparison to past Deals

By Sumeet Singh

Rakuten (4755 JP) aims to raise up to US$2.4bn (JPY323bn) via a global offering.
We have covered various aspects of the deal in our earlier notes, see here and here.
In this note, we will talk about the updates since our last note, as well as the performance of some of the past large primary raises in Japan.

Quiddity Leaderboard TDIV Jun 23: Five Changes and US$922mn One-Way Flows

In this insight, we take a look at Quiddity’s flow expectations for the June 2023 index rebalance.
I currently see 5 ADDs/DELs. Some of these names are different from the ones I specified in my previous insight.
I have also discussed some long-short trading ideas involving names with significant flow implications.

Nippon Prologis (3283 JP) Offering: Lower Premium Vs Peers than Last Time

Japan’s largest logistics REIT Nippon Prologis Reit (3283 JP) (“NPR”) announced a US$183mn follow-on equity offering to fund their recent acquisition of a logistics facility.
The primary offer quantity will be 86,851 units out of which 51,090 units and 35,761 units are expected to be allocated for domestic and international investors, respectively.
Below is a closer look at the details of this offering and the potential of this offering to trigger strong secondary market performance in the following weeks.

Quiddity Leaderboard T50/100 Jun 23: One T50 Change and Four T100 Changes (With TDIV Implications)

In this insight, we take a look at the names leading the race to become ADDs/DELs for the T50 and T100 Indices for the June 2023 Rebalance.
I see one change for the T50 index and four changes for the T100 index.
Even though our standalone flow expectations for the T100 index is insignificant, there is one name with important flow consequences in June 2023.

Nucleus Clyde/Curtis Banks: Update

Deal remains subject to approvals from FCA, PRA, SRA and clearance by CMA. Curtis said the scheme will likely be delayed until Q3 2023. There’re potential antitrust and tech integration issues.
Curtis trades at 15x Fwd P/E and the spread has widened to 7.7%. Some event-driven funds are cashing in partially while others are taking advantage of the blip.
I think there’s still a reasonably good chance of a deal happening (implied c.68%), but considering issues in recent situations (Wood, EMIS, THG, even Caverion), investors’ concerns can be understood.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

May 22

Daily Brief Event-Driven: Nikkei 225 Vs TOPIX Dynamics and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Nikkei 225 Vs TOPIX Dynamics
Merger Arb Mondays (22 May) – HKBN, Newcrest, InvoCare, United Malt, Golden Energy, Penguin, Shinsei
Korea: What Are Foreign Investors Buying & Selling?
Meritz Financial: Main Target for Flow Trading in KS200 June Rebalancing

Nikkei 225 Vs TOPIX Dynamics

This past week saw dramatic moves in Japanese stock markets. TOPIX +3.1% N225 +4.8% – up the 6th week in a row – closing at their highest in 33 years.
Flows were positive the week before, and I expect we’ll see next week they were positive this past week. But most striking was the interplay between Nikkei 225 and TOPIX.
If foreign inflows increase, Nikkei is likely to outperform TOPIX both because of its existence and previous use, and its construction. And that means watching one’s trades, shorts, and executions.

Merger Arb Mondays (22 May) – HKBN, Newcrest, InvoCare, United Malt, Golden Energy, Penguin, Shinsei

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 – 111 Inc (YI US), Estia Health (EHE AU), HKBN Ltd (1310 HK), United Malt Group Ltd (UMG AU), Hailan Holdings (2278 HK), Aag Energy Holdings (2686 HK).
Lowest spreads – Healius (HLS AU), Liontown Resources (LTR AU), Lian Beng (LBG SP), SBI Shinsei Bank (8303 JP), Allkem Ltd (AKE AU), Penguin International (PBS SP).

Korea: What Are Foreign Investors Buying & Selling?

Foreign investors have been buying stock in Korea. They now hold 32% of the KOSPI market cap and 18.5% of the KOSDAQ market cap.
As a percentage of market cap, foreigners have been big buyers of Yg Entertainment, Hyundai Rotem and Meritz Financial Group. Selling has been on Ecopro Co and Posco Future M.
Shorts have increased on Ecopro Co Ltd (086520 KS) and Posco Future M (003670 KS) while there has been covering on Kakao Pay (377300 KS) and POSCO Holdings (005490 KS).

Meritz Financial: Main Target for Flow Trading in KS200 June Rebalancing

Meritz Financial confirmed the total number of treasury shares resulting from the mergers, amounting to 5.04% of SO. When combined with the largest shareholder’s stake, the float rate becomes 47.75%.
We should focus on direct rebalancing flow through KS200 ETFs on T-1 effective rather than setting it up preemptively. The estimated total AUM of ETFs directly mirroring KS200 is ₩17T.
Meritz Financial is expected to receive an inflow of around ₩43B, equivalent to 1.35x ADTV. This is a significant flow impact size as a single-day event.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

May 21

Daily Brief Event-Driven: Last Week in Event SPACE: Shinsei Bank and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Last Week in Event SPACE: Shinsei Bank, China Everbright, Rakuten, Sony Corp
Official Results of KOSPI 200 Sector Indices Rebalancing: Kakao Pay’s Sector Change Confirmed
EQD | Volatility Update: Weekly Review of Vol Changes and Best Trades- Bad Data Is Good?
(Mostly) Asia-Pac Weekly Risk Arb Wrap: InvoCare, Newcrest/Newmont, Penguin Int’l, Golden Energy

Last Week in Event SPACE: Shinsei Bank, China Everbright, Rakuten, Sony Corp

Expect some upset on SBI Shinsei Bank (8303 JP)‘s Offer, the possibility of some activism, but it all plays out in the back end. Not the front end.
Rakuten (4755 JP) is doing a large equity offering to get the monkey off its back with regard to over-leverage, near-term debt refinancing, and WC for Rakuten Mobile.
Fund manager China Everbright (165 HK)‘s implied stub and simple ratio (CEL / Everbright Securities Co (A) (601788 CH)) are at multi-year lows.

Official Results of KOSPI 200 Sector Indices Rebalancing: Kakao Pay’s Sector Change Confirmed

The fact that KS200 IT has a significantly higher AUM provides a flow trading opportunity. This is due to the change in GICS for Kakao Pay from IT to Financials.
It has been observed that Kakao Pay’s DTV has recently decreased significantly. This may result in the flow size reaching up to 1.4 times DTV.
It is advisable to design an outright short position for day trading purposes. Additionally, a more aggressive approach can be considered by combining a long position on Samsung SDS.

EQD | Volatility Update: Weekly Review of Vol Changes and Best Trades- Bad Data Is Good?

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

(Mostly) Asia-Pac Weekly Risk Arb Wrap: InvoCare, Newcrest/Newmont, Penguin Int’l, Golden Energy

There are 40 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
Two new deals were discussed on Smartkarma this past week: SBI Shinsei Bank (8303 JP) Tender Offer and TPG’s revised Offer for Invocare Ltd (IVC AU).
Key updates took place for Newcrest Mining (NCM AU)/Newmont Mining (NEM US), Penguin International (PBS SP), Golden Energy & Resources (GER SP), and Sing Tao News Corp (1105 HK).

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

May 20

Daily Brief Event-Driven: Preemptive Flow Trading Opportunities with the Fastest-Growing Sector ETFs in Korea and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Preemptive Flow Trading Opportunities with the Fastest-Growing Sector ETFs in Korea
Take-Private Interest

Preemptive Flow Trading Opportunities with the Fastest-Growing Sector ETFs in Korea

Two SOL sector ETFs are unique in that they only include companies positioned upstream. This results in a group of smaller-sized constituents, which can have a greater flow impact.
Once the universe is established, constituent selection and weight adjustment are determined exclusively using full/float market capitalization. As a result, flow trading can be highly predictable.
Although they have lower AUM, the five Semiconductor constituents could still face a significant flow impact during this one-day flow event due to their much lower DTV.

Take-Private Interest

Applus has long been considered an LBO candidate: arguably cheap (10.8x EV/Fwd EBIT vs. peers >13x) with no dominant shareholders on the register. Apollo, Apax and I Squared/TDR are circling.
My fair-value estimate ranges from €10.51/share (DCF) to €11.33/share (multiples, applying a discount to more profitable peers). There’re two issues regarding a possible LBO: IDIADA contract and debt covenants.
Cost of debt would increase to >4% and the buyer would have to negotiate a temporary increase of covenants to 5x EBITDA (probably in exchange of disposal of O&G business).

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

May 19

Daily Brief Event-Driven: KOSPI200 Index Rebalance: Two Sets of Changes and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

KOSPI200 Index Rebalance: Two Sets of Changes
Sony (6758 JP) – Big-But-Meh Buyback, and Bigger Potential Sony Financial Spinoff
KOSDAQ150 Index Rebalance: 8 Changes with Some Surprises; Performance Deteriorating
Suruga Bank (8358) To Sell, Then Buy Back 17% of the Bank, but HOW Is Key.
How Should We Time the L&F Shorting Event for Another Share Dilution Risk?
Trading Strategy Post KRX Rebalance Announcement of KOSPI 200 and KOSDAQ 150
Sing Tao (1105 HK) Makes Its Own News
Golden Energy: IFA Says Fair & Reasonable. It Is Neither
Golden Energy (GER SP): Art of the Lie as the IFA Says Offer Is Fair and Reasonable

KOSPI200 Index Rebalance: Two Sets of Changes

There will be 2 additions and 2 deletions for the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) at the June rebalance that will be implemented on 8 June.
Kum Yang (001570 KS) and Cosmochemical (005420 KS), both high probability names, are inclusions while Hwaseung Enterprise (241590 KS) and Dongwon Industries (006040 KS) are deletions.
Not surpisingly, there is almost no short interest on the adds. Short interest on the deletes is higher and rising. Expect short covering on the deletes prior to implementation.

Sony (6758 JP) – Big-But-Meh Buyback, and Bigger Potential Sony Financial Spinoff

Sony Corp (6758 JP) reported earnings on 28 April, which saw profit-taking the next day after a brief two-day run-up, as revenues, OP, and NP were guided down.
There previous ¥200bn buyback ended about two weeks later. Yesterday they launched a new ¥200bn buyback, and the stock reacted well this AM. And then BIG new news this morning.
Sony announced an assessment of a partial spin-off of Sony Financial. Assessment this FY, spinoff “within next 2-3yrs” (if possible). This garnered more excitement. Brief analysis of both follows.

KOSDAQ150 Index Rebalance: 8 Changes with Some Surprises; Performance Deteriorating

There are 8 inclusions and 8 exclusions for the KOSDAQ 150 Index (KOSDQ150 INDEX) at the June rebalance to be implemented at the close on 8 June.
There is one surprise on the deletions and there are a few surprise non-deletions. Smaller surprise on some non-inclusions.
Short interest is non-existent on the adds and is a lot larger on the deletes. Shorts on the deletes will be covered in the next few weeks.

Suruga Bank (8358) To Sell, Then Buy Back 17% of the Bank, but HOW Is Key.

Suruga Bank Ltd (8358 JP) today signed an MOU (with board resolution) to form a business and capital alliance with Credit Saison (8253 JP).
Suruga will sell (post-dilution) 15+% of voting rights to Credit Saison, and buy 4.44% of CreditSaison. Then Suruga will try to buy back the shares it sold to Credit Saison.
A look at the history is instructive, as is a look at the shareholder structure and the change in business model post-2019. Not as easy as it looks.

How Should We Time the L&F Shorting Event for Another Share Dilution Risk?

The main challenge is the construction of new production facilities in the US. The investment amount is estimated to be around ₩1T, achieving an annual production capacity of 100,000 tons.
The government’s approval is the most significant factor to monitor. It will likely be granted between late June or early July, which is when we should start building positions.
Due to the local market’s expectation of L&F’s upcoming fundraising event, some traders may start building their positions early on. It’s important to consider this possibility and act preemptively.

Trading Strategy Post KRX Rebalance Announcement of KOSPI 200 and KOSDAQ 150

By Douglas Kim

Korea Exchange announced the KOSPI 200 and KOSDAQ 150 indices constituents changes today.
Kum Yang (001570 KS) and Cosmochemical (005420 KS) were included in the KOSPI 200. Dongwon Industries (006040 KS) and Hwaseung Enterprise (241590 KS) were excluded in KOSPI 200 index.
We expect continued underperformance of Kumyang and Cosmo Chemical as many investors will now start to sell these stocks based on “buy on rumor, sell on news” strategy.

Sing Tao (1105 HK) Makes Its Own News

Sing Tao News Corp (1105 HK), which owns Hong Kong’s oldest and third-largest Chinese language newspaper, is suspended pursuant to the Hong Kong Code on Takeovers and Mergers.
A takeover of Sing Tao was mooted in 2019-2021 when Charles Ho, the former chairman, sought to exit his 48.98% stake; but that transaction fizzled out.
At a market cap of just US$50mn, this (likely) Offer hardly rates a mention. Yet a takeover of a Hong Kong newspaper is still newsworthy.

Golden Energy: IFA Says Fair & Reasonable. It Is Neither

Responding to SIAS and the SGX, the Widjaja Family revised terms such that Golden Energy (GER SP) shareholders opting for an all-cash payout would receive S$0.973/share, up from S$0.846/share.
The Offer remains low-balled. The Offer should include a similar in-specie of the Stanmore Coal (SMR AU) stake together with a cash-out option. This is the most transparent approach.
The Circular is out and the IFA reckons the Offer is fair & reasonable – despite a fair value of S$0.574/share for Stanmore versus the Exit Offer of A$0.181/share.

Golden Energy (GER SP): Art of the Lie as the IFA Says Offer Is Fair and Reasonable

The IFA has concluded that the Widjaja family’s offer for Golden Energy & Resources (GER SP) is fair and reasonable. The EGM will be held on 9 June.
The IFA has justified its conclusion based on a convoluted methodology that has serious flaws. A fairer SOTP valuation is 37% higher than the IFA’s SOTP valuation range.
Notably, Dian Swastatika Sentosa (DSSA IJ) will abstain from voting on both resolutions. While the prospect of a bump is diminishing, the offeror is yet to declare the offer final.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

May 18

Daily Brief Event-Driven: Canon Buyback – 18th in a Row at the Same Size and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Canon Buyback – 18th in a Row at the Same Size, But This Time With a Running Head Start
S&P/ASX Index Rebalance Preview: Potential Changes, Impact, Shorts & Positioning
StubWorld: China Everbright (165 HK) Trading Wide
Quiddity Leaderboard NIFTY Sep 23: Some Interesting Long-Short Trades

Canon Buyback – 18th in a Row at the Same Size, But This Time With a Running Head Start

Canon has conducted 18 buybacks in the last 15 years. Every single one has been the same size. And the parameter-setting and how they are executed is… particular.
For those with Canon to execute, using the information about patterns may be helpful.
For those interested in a trade, there may be one here.

S&P/ASX Index Rebalance Preview: Potential Changes, Impact, Shorts & Positioning

The review period for the June rebalance of the S&P/ASX family of indices ends tomorrow and we expect two changes for the S&P/ASX 200 (AS51 INDEX).
Impact of passive trading on the stocks varies between 4.3-11 days of ADV. Short interest on the potential adds is small while there are significant shorts on the potential deletes.
We expect there is pre-positioning on at least three of the four stocks. In some cases that is small, while it could be a lot larger in other stocks.

StubWorld: China Everbright (165 HK) Trading Wide

Fund manager China Everbright (165 HK)‘s implied stub and simple ratio (CEL / Everbright Securities Co (A) (601788 CH))) are at multi-year lows.
Preceding my comments on China Everbright are the weekly setup/unwind tables for Asia-Pacific Holdcos.
These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

Quiddity Leaderboard NIFTY Sep 23: Some Interesting Long-Short Trades

In this insight, we take a look at the names leading the race to become ADDs/DELs for the NIFTY 50 and NIFTY 100 indices in the September 2023 rebalance.
The HDFC Limited (HDFC IN) – HDFC Bank (HDFCB IN) merger could complete earlier than previously expected, triggering intra-review index replacements.
Separately, I have presented some interesting new trading ideas involving some of the index change candidates, and I discuss the status of pre-existing trade ideas.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

May 17

Daily Brief Event-Driven: Rakuten (4755 JP) – A Big Deal With Very Interesting Characteristics – Index Matters and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Rakuten (4755 JP) – A Big Deal With Very Interesting Characteristics – Index Matters
Rakuten (4755 JP) Offering: Could Drop Some More Before Passive Buying Kicks In
Penguin Int’l (PBS SP): Chairman & Dymon’s Bumped & Final Offer
GLP J-Reit (3281 JP): Cheaper than Peers, Offering Could Be a Catalyst
MVIS Australia A-REITs Index Rebalance Preview: Capping Changes & Flows
Triton/Caverion: Drawing to a Close
Liquid Universe of European Ordinary and Preferred Shares: May‘23 Report
Iberdrola/PNM Resources: Long-Distance Race

Rakuten (4755 JP) – A Big Deal With Very Interesting Characteristics – Index Matters

Yesterday (15 May 2023) just before EOD, an article ran suggesting a ¥300bn capital raise by Rakuten (4755 JP). The stock fell 10% in 10mins. Rakuten hemmed/hawed but didn’t deny.
One day later, we have a deal. It is up to 546mm shares including greenshoe, which at the close was ¥333bn. 468mm shares to the public, 79mm to 3rd parties.
This increases Real World Float by 95%. In that respect this is vaguely IPO-ish. Investors have to re-underwrite. Then Passive re-shrinks the float. Details matter.

Rakuten (4755 JP) Offering: Could Drop Some More Before Passive Buying Kicks In

Rakuten (4755 JP) is looking to raise around US$2.4bn by selling shares via a Japanese Public Offering and an International Offering as well as through a third-party allotment.
The stock has already dropped 13.7% in the last couple of days on large volumes as the rumours of the offering started to swirl.
The offering prices late next week and passive trackers will be buying stock once the stock settles and this will provide support in the near-term.

Penguin Int’l (PBS SP): Chairman & Dymon’s Bumped & Final Offer

On the 4 May, Singapore-based builder and operator of aluminum high-speed boats Penguin International (PBS SP) announced a Voluntary Unconditional Offer from its Chairman and Dymon Group at S$.82/share.
The Offer Price was a lifetime high and likely sufficient to push for compulsory acquisition. However, the Offerors have now sweetened terms to S$0.83/share.
As to be expected, this is trading to terms. Volume remains light.

GLP J-Reit (3281 JP): Cheaper than Peers, Offering Could Be a Catalyst

On 15th May 2023, large-cap logistics JREIT GLP J-REIT (3281 JP) (“GLP”) announced a follow-on equity offering to fund part of their recently-announced property acquisition.
The primary offer quantity is 209,991 units. In addition, there will also be an over-allotment quantity of 3,200 units. The total size of this offering could be roughly ¥30.6bn (~US$225mn).
In this insight, we take a closer look at the details of this offering and the potential of this offering to trigger strong secondary market performance in the following weeks.

MVIS Australia A-REITs Index Rebalance Preview: Capping Changes & Flows

We do not expect any constituent changes in June (that could change though!). The only flows are likely to be from capping the constituents at 10% of the index weight.
Capping changes will lead to a one-way turnover of 2.15% resulting in a one-way trade of A$14m. There are two stocks with over A$5m to trade.
Stockland (SGP AU) will be the most affected stock with passive trackers needing to sell over 1 day of ADV. The stock has run up and shorts are increasing.

Triton/Caverion: Drawing to a Close

Crayfish/Triton’s purchase price is the highest and now officially preferred by Caverion Corp (CAV1V FH)‘s Board of directors. The offer period for both offers expires on 17 May.
Caverion’s board advisors believe the offer will be finalized between October and February. Shares trade above Bain’s alternative consideration (lower chance to succeed) and Triton has already secured 29.9%.
Spread to Triton’s offer is 4%/7.9% (gross, annualised assuming settlement by 30 November), however the free float has been massively reduced, hence the liquidity too.

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

Since mid-April, spreads have generally widened across our liquid universe (12 have widened, 7 tightened). German spreads are tightening.
Recommended trades long ordinary / short preferred shares: Fuchs Petrolub, SSAB Svenska Stal, Roche.
Recommended trades long preferred / short ordinary shares: Carlsberg, Media-for-Europe, Sixt, VW, Grifols, Atlas Copco.

Iberdrola/PNM Resources: Long-Distance Race

The New Mexico Supreme Court denied a joint motion filed by PNM Resources (PNM US), Avangrid Inc (AGR US) and the New Mexico Public Regulation Commission last February.
The New Mexico Court assess the operation in an oral hearing convened next September. The delay of the decision implies higher uncertainty about the closing of this deal.
I continue to believe that Iberdrola/Avangrid’s acquisition will be completed. PNM shares look fairly valued on an EV/Fwd EBITDA basis, therefore I see it as a reasonably balanced risk-reward proposition. Long.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

May 16

Daily Brief Event-Driven: Yuexiu Rights – The Trading Pattern Fits and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Yuexiu Rights – The Trading Pattern Fits
JAPAN BUYBACKS – Alfresa (2784) Cheap Stock, Uncheapening, Goes Big
Newcrest Backs Newmont’s US$19bn Offer
Checking on Dongwon Industries’ KS200 Deletion Situation After Last Friday’s Share Cancellation Plan
GLP J-REIT Placement – Could Be Another Addition to Its History of Well-Performing Deals
MVIS Australia Equal Weight Index Rebalance: Potential Deletes & Capping Changes
Penguin International (PBS SP): Dymon Asia’s Unconditional and Final Offer of S$0.83
Newcrest Mining (NCM AU): Binding Offer from Newmont
Quiddity Leaderboard-DAX Jun 23: Two Changes for the MDAX Index
InvoCare (IVC AU): TPG’s Revised $13/Share Non-Binding Offer

Yuexiu Rights – The Trading Pattern Fits

The Yuexiu Property (123 HK) Rights start trading today. Last day is next Monday. There is a general pattern to the flows and it behooves investors to be aware.
There is a pattern to these trades which is worth understanding.
In this case, I expect it is worth going long Yuexiu Rights vs Short peer basket equity earlier in the cycle.

JAPAN BUYBACKS – Alfresa (2784) Cheap Stock, Uncheapening, Goes Big

Born of a merger between two not-very-well-known businesses 20 years ago, Alfresa Holdings (2784 JP) is still not very well known. It is in a boring, low-margin business.
The highest EBIT margin in the past two decades was…. 1.8%. ROE was in the 8-10% range for 2016-2020 but has since fallen below, as PBR has fallen below 1.0x.
Today, we got an amended Mid-Term Management Plan, a new dividend policy, and buyback of 10% of shares out based on last price. It’s worth looking in the details.

Newcrest Backs Newmont’s US$19bn Offer

On the 11 April, Newmont Mining (NEM US) bumped the all-scrip terms for Newcrest Mining (NCM AU) to 0.400 Newmont shares – from 0.380 – for each Newcrest share held.
Exclusive due diligence was granted and now a firm Offer, by way of a Scheme, has been agreed.
The Offer permits Newcrest to pay a special franked dividend of up to $US1.10/share on top of the Offer terms.

Checking on Dongwon Industries’ KS200 Deletion Situation After Last Friday’s Share Cancellation Plan

It is highly likely that Dongwon Industries will be removed from the KOSPI 200 index in this June review.
Additionally, based on the confirmed cancellation timeline, the possibility of reinstatement during the December review seems unlikely.
As a result, it would be wise to maintain shorting position strategies that factor in this information.

GLP J-REIT Placement – Could Be Another Addition to Its History of Well-Performing Deals

By Ethan Aw

GLP J-REIT (3281 JP) is looking to raise around US$220m through a primary follow-on offering. The deal is a large one to digest, at 17 days of three month ADV.
The proceeds will be used to acquire three new properties and obtain a 30% co-ownership interest in a fourth one.
In this note, we’ll run the deal through our ECM framework and comment on deal dynamics.

MVIS Australia Equal Weight Index Rebalance: Potential Deletes & Capping Changes

There are unlikely to be any inclusions to the index in June while there are three stocks that are close to the deletion threshold.
Even if there are no constituent changes, there will be capping changes that will result in one-way turnover of over 4% and a one-way trade of A$78m.
Short interest on AMP Ltd (AMP AU) has been increasing as the stock has dropped and a further decline in the stock could lead to deletion.

Penguin International (PBS SP): Dymon Asia’s Unconditional and Final Offer of S$0.83

Penguin International (PBS SP) disclosed a revised and final voluntary unconditional offer from Dymon Asia, Executive Chairman and Managing Director at S$0.83, a 16.9% premium to the undisturbed price.
Unlike the previous offer, the final offer will not be reduced for the FY22 dividend. The final offer price is attractive and represents a 10-year share price high.
An attractive offer makes it also likely that the offeror hits the 90% compulsory acquisition threshold, which requires a minority acceptance rate of around 44%.

Newcrest Mining (NCM AU): Binding Offer from Newmont

Newcrest Mining (NCM AU) has entered a SID with Newmont Mining (NEM US) at 0.400 Newmont shares per Newcrest share + US$1.10 special dividend + ordinary dividends (FY2023 dividend of US$0.20).
The proposal is subject to shareholder approval from both sets of shareholders along with regulatory approvals (FIRB, US, Canada, Papua New Guinea).
The offer is attractive in terms of historical prices and VWAP exchange ratios but carries the volatility risk around Newmont shares and FX rates.

Quiddity Leaderboard-DAX Jun 23: Two Changes for the MDAX Index

In this insight, we take a look at Quiddity’s estimates for the names leading the race to become ADDs/DELETEs for the DAX, MDAX, and SDAX Indices.
As things stand, there will not be any ADDs or DELs from the DAX index or the SDAX index.
There could be two ADDs/DELs for the MDAX index in the June 2023 rebalance.

InvoCare (IVC AU): TPG’s Revised $13/Share Non-Binding Offer

On the 7 March, PE outfit TPG took a 17.8% stake in InvoCare (IVC AU), Australia’s leading funeral services provider, and also pitched a A$12.65/share non-binding Offer via a Scheme.
The Indicative proposal was subject to the completion of due diligence. InvoCare rejected the proposal on the 27 March. On the 24 April, TPG withdrew its NBIO.
TPG has returned with a revised A$13/share, inclusive of a A$0.60/share fully franked dividend. If the proposal becomes a binding transaction, InvoCare’s Board intends to unanimously recommend it.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

May 15

Daily Brief Event-Driven: SBI Launches Opportunistic and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

SBI Launches Opportunistic, Unfair Offer for Shinsei (8303) And Shinsei Board Drops the Ball
Yuexiu Property (123 HK): Rights Trade Playbook
The Core of CFD Margin Call Risk May Lie in the JPM Counter, Not SG: Potentially Infected Names
Merger Arb Mondays (15 May) – SBI Shinsei, Arteria, Toshiba, Yitai, Hailan, Allkem, Lian Beng
Weekly Deals Digest (14 May) – Toshiba, Arteria, Shinsei, Yitai Coal, Allkem, Horizon Construction
Lian Beng: Circ Out. IFA (Rightfully) Says Not Fair
InvoCare (IVC AU): TPG’s Revised $13/Share Non-Binding Offer

SBI Launches Opportunistic, Unfair Offer for Shinsei (8303) And Shinsei Board Drops the Ball

After the large tender offer in late 2021, SBI was always going to try to take Shinsei Bank private. Now they have launched their deal at ¥2,800/share.
That is below fair according to the Board, Special Committee, and implicitly to SBI. But the Shinsei Board has recommended shareholders tender so The Government will vote to squeeze out.
I expect some upset, the possibility of some activism, but it all plays out in the back end in my opinion. Not the front end.

Yuexiu Property (123 HK): Rights Trade Playbook

On 20 April, Yuexiu Property (123 HK) announced plans to raise US$1.1 billion through 30 rights shares for every 100 existing shares rights offering, with a rights price of HK$9.00.
Since the announcement of the rights issue, Yuexiu shares have declined by -23.6% to the undisturbed price and by -18.2% compared to the TERP of HK$11.74 per share.
The shares went ex-rights on 2 May and the rights start trading on 15 May. Link REIT (823 HK)’s trading over its rights period provides the playbook for Yuexiu’s trading.

The Core of CFD Margin Call Risk May Lie in the JPM Counter, Not SG: Potentially Infected Names

The possibility of experiencing a CFD margin call is a genuine and persistent concern. Even a small trigger causes selling pressure to intensify and results in a rapid downward trend.
The counter that the local market is closely monitoring is JPM. The selling pressure from the JPM counter since May 8th has exhibited an abnormal pattern.
Eight names are screened. They are KOSPI 200/KOSDAQ 150 constituents with JPM’s net selling volume to SO being 0.2% or higher, and a margin-equity ratio of 3% or higher.

Merger Arb Mondays (15 May) – SBI Shinsei, Arteria, Toshiba, Yitai, Hailan, Allkem, Lian Beng

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 111 Inc (YI US), ARTERIA Networks Corp (4423 JP), Estia Health (EHE AU), United Malt Group Ltd (UMG AU), Aag Energy Holdings (2686 HK), Hailan Holdings (2278 HK).
Lowest spreads – Healius (HLS AU),Liontown Resources (LTR AU), Penguin International (PBS SP), Lian Beng (LBG SP), Mincor Resources NL (MCR AU), Blackmores Ltd (BKL AU), Arcland Service.

Weekly Deals Digest (14 May) – Toshiba, Arteria, Shinsei, Yitai Coal, Allkem, Horizon Construction

A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
ECM developments – Nexus Select Trust (NST IN), Tata Technologies (TATATECH IN), ADICON Holdings Limited (ADI HK), Horizon Construction Development (1887128D HK) IPOs.
Event-Driven developments – ARTERIA Networks Corp (4423 JP), SBI Shinsei Bank (8303 JP), Toshiba Corp (6502 JP), Hailan Holdings (2278 HK), Inner Mongolia Yitai Coal Company Ltd (3948 HK), Allkem.

Lian Beng: Circ Out. IFA (Rightfully) Says Not Fair

In response to media feedback calling out the low-balled Offer, the Ong family bumped the Offer Price for Lian Beng (LBG SP) by 9.7% to S$0.68/share and declared terms final.
At 0.43x P/RNAV, and with the bulk of the assets related to investment/development property, the price was still wrong,
The Circular is now out. The IFA considered terms to be not fair and not reasonable. The same opinion as in the 2021 Offer.

InvoCare (IVC AU): TPG’s Revised $13/Share Non-Binding Offer

On the 7 March, PE outfit TPG took a 17.8% stake in InvoCare (IVC AU), Australia’s leading funeral services provider, and also pitched a A$12.65/share non-binding Offer via a Scheme.
The Indicative proposal was subject to the completion of due diligence. InvoCare rejected the proposal on the 27 March. On the 24 April, TPG withdrew its NBIO.
TPG has returned with a revised A$13/share, inclusive of a A$0.60/share fully franked dividend. If the proposal becomes a binding transaction, InvoCare’s Board intends to unanimously recommend it.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

May 14

Daily Brief Event-Driven: HSI Index Rebalance: Yippee! Finally at 80! and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

HSI Index Rebalance: Yippee! Finally at 80!
JAPAN BUYBACKS: A Very Big Week
SBI Shinsei Bank (8303 JP): SBI’s Contentious JPY2,800 Tender Offer
A Crash in 2 More Korean Stocks Related to CFD Derivatives: Margin Calls Again
EQD | Volatility Update: Weekly Review of Vol Changes and Best Trades- China Cooling?
Nikkei 225 Index Consultation Makes Things Weirder, but Still a 0️⃣🍔
HSCEI Index Rebalance: China Shenhua (1088 HK) Replaces Country Garden (2007 HK); Div Impact
Last Week in Event SPACE: MitCorp, Jardine Matheson, Toshiba, Japanese Foreign Inflows
(Mostly) Asia-Pac Weekly Risk Arb Wrap: Allkem/Livent, Yitai Coal, ARTERIA, St Barbara, AAG Energy

HSI Index Rebalance: Yippee! Finally at 80!

The Hang Seng index committee has added four stocks to take the number of Hong Kong Hang Seng Index (HSI INDEX) constituents to 80. A year late, but we’re there!
The next leg of the increase in the number of index constituents will take us up to 100. There is no timeline, so this should take a couple of years.
Estimated one-way turnover is 2.93% leading to a one-way trade of HK$5.7bn (US$730m). All adds will have over 2x ADV to buy from passive trackers.

JAPAN BUYBACKS: A Very Big Week

This past week, nearly 150 companies in Japan announced buyback programmes totalling ¥2.1trln. 3 Tenders, 26 ToSTNeT-3 buybacks (including at least 5 delayed starts).
The median on-market buyback was 2.40% of shares, the average 2.9% (both measured as practical maxima at announcement. Median/Average % of ADV was 7.6/9.2%.
My prediction that this will be a record year for stock buybacks still stands.

SBI Shinsei Bank (8303 JP): SBI’s Contentious JPY2,800 Tender Offer

SBI Shinsei Bank (8303 JP) has recommended SBI Holdings (8473 JP)’s tender offer of JPY2,800 per share, a 12.6% premium to the undisturbed price (11 May).
There is no minimum acceptance condition. SBI and irrevocables from government entities represent 73.02% of voting rights, ensuring the implementation of tender squeeze-out procedures.
The special committee failed to unanimously recommend the offer. Minorities will feel short-changed as the outcome is predetermined and the offer tends to favour the government shareholders.

A Crash in 2 More Korean Stocks Related to CFD Derivatives: Margin Calls Again

By Douglas Kim

In this insight, we discuss two stocks in Korea, Dong Yang P&F and Shindaeyang Paper, whose share prices declined sharply on 12 May.
It appears that the main culprit behind their collapse in share price appears to be unwinding of the excessive leverage (especially CFD derivatives trading).
Post the sharp decline in their share price for DYPNF and Shindeyang Paper on 12 May, further downside is likely on these stocks in the coming weeks.

EQD | Volatility Update: Weekly Review of Vol Changes and Best Trades- China Cooling?

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

Nikkei 225 Index Consultation Makes Things Weirder, but Still a 0️⃣🍔

The Nikkei Index team has been quite conscious of market impact since the April 2000 debacle. For a few years after, things were quieter. In 2005, Fast Retailing spurred introspection.
Float was low and became lower. Selection behaviour changed. Now there is a new consultation where “technical listings” would stay in, and phased “stepwise” inclusion would reduce inclusion impact.
The proposal increases subjectivity, reduces the attractiveness of bets, but otherwise increases the likelihood they will follow the other selection rules. It STILL does not solve the high weight problem.

HSCEI Index Rebalance: China Shenhua (1088 HK) Replaces Country Garden (2007 HK); Div Impact

As expected, China Shenhua Energy Co H (1088 HK) replaces Country Garden Holdings Co (2007 HK) in the Hang Seng China Enterprises Index (HSCEI INDEX) at the close 2 June.
Using prices from the close on 12 May, estimated one-way turnover is 2.1% leading to a one-way trade of HK$1.3bn (US$170m).
The change will lead to an increase in the fair value of the HSCEI 2023 Dividend Futures. We’d be sellers on a move higher towards 240 DIPS.

Last Week in Event SPACE: MitCorp, Jardine Matheson, Toshiba, Japanese Foreign Inflows

Mitsubishi Corp (8058 JP)‘s ¥300bn buyback means 8+% of ADV every day from here to end-Dec 2023. Buy MitCorp vs trading houses with less of a buyback impact.
Rumours abound of an MSCI up weight for Jardine Matheson Holdings (JM SP). It wasn’t a clear-cut situation. And nothing came of it.
There are concerns about the stability of funding for JIP’s offer for Toshiba Corp (6502 JP) in the event that Kioxia (6600 JP)’s results collapse further.

(Mostly) Asia-Pac Weekly Risk Arb Wrap: Allkem/Livent, Yitai Coal, ARTERIA, St Barbara, AAG Energy