Event-Driven

This is a hybrid insight on the upcoming TOPIX FFW Review to be announced 7 October, and the situation around Shinsei Bank (8303 JP).
Shinsei Bank is in “limbo” post control-acquisition by SBI Holdings (8473 JP) and an attempt to go over 50% should be in the works. When is not known.
The TOPIX FFW Review should see ¥2.0-2.2trln of one-way flow, and amongst that flow, a large sell on Shinsei to increase Real World Float by 60+% and 25d of ADV.

Tencent Investee Selldown – The US$120bn Global Overhang

By Sumeet Singh

Multiple new agencies have been reporting that Tencent (700 HK) plans to trim its investment portfolio over the remainder of the year.
The reports have been coming in since the second half of the year and the company has been duly denying these rumors.
In this note, we look at Tencent’s shareholding in various companies to try and gauge which ones it could sell out of and how.

Jinke Smart (9666 HK)’s Low-Balled But Virtually Unconditional Offer

PRC-Incorporated property management play Jinke Smart Services (9666 HK) has announced a voluntary cash offer at HK$12/share, a 33.04% premium to last close.
The Offeror (Boyu) and concert parties collectively hold more than 50%. The Offer is contingent on regulatory approvals and 7.71% of shares out tendering. The tendering condition can be waived.
The Offer appears geared to bring Boyu’s stake in line with Jinke Property Group (000656 CH)‘s.

SET50 Index: Market Consultation & DTAC/TRUE Merger Impact

The SET has commenced a market consultation on lowering the turnover ratio level from 5% to 2% while selecting stocks to be added to and deleted from the SET50 INDEX.
The change to the turnover ratio level could lead to three changes in December that result in one-way turnover of 7.44% and in a one-way trade of THB 6.79bn.
Separately, the Total Access Communication (DTAC TB) / True Corp Pcl (TRUE TB) merger could result in an ad hoc inclusion prior to the regular rebalance in December.

About A Gajillion Yen of Index Flows At the Close

Today is a day which happens twice a year in Japan.
It is Day Before Divs Go Ex- Day. Which theoretically means a fair bit of buying.
Nikkei 225 is pretty neutral. But there is a Nikkei 225 buy of Nidec Corp (6594 JP). TOPIX and other float market cap indices are a buy on the close.

Swire B Vs A – Surprising on Regs, Surprising on Risk; Short-Tm Displacement Now in 99th Percentile

The Swire buyback has been impressive. In 27 trading days they have bought back 26.8% of teh HK$4bn promised. In that period, participation has been aggressive.
Swire has bought back As at a pace of 52% of pre-buyback one-year ADV. For Bs, it has been 105%. But Bs have dramatically underperformed As on “HK Re-opening” trades.
Historically, when B/A gets more than 6% from 3mo Avg VWAP Ratio, there is statistically significant reversion. We are now at 6.8%. I’d buy B vs A.

Jinke Smart’s VGO of HK$12.00 from Boyu Capital

Jinke Smart Services (9666 HK) announced a voluntary conditional general offer from Boyu Capital at HK$12.00 per share, a 33.0% premium to the undisturbed price.
The offer is conditional on 7.71% valid acceptances (such that Boyu represents 30.40% of outstanding shares) and anti-trust approval. The conditions can be waived.
The offer is designed to flush out minorities unwilling to wait for the industry headwinds to dissipate. A low threshold suggests that the offer will be declared unconditional.

MACA’s A$1.075 Offer from Theiss Declared Unconditional

Theiss’ offer of A$1.075 per share for MACA Ltd (MLD AU) has been declared unconditional despite acquiring 44.30% of outstanding shares, below the 50% threshold.
The offer has met with resistance from retail shareholders as it remains below NRW’s rejected offer, and there is a lack of clarity on franking credits.
Thiess can restart on-market purchases from 27 September. The offer closes on 7 October. The shares are trading in line with the offer.

STOXX Europe Quiddity Leaderboard Dec 22: Five Intra-Review Changes, Porsche Leading The Race

In this insight, we take a look at the names leading the race to become ADDs/DELs for the STOXX Europe 600 and EuroSTOXX Indices for the December 2022 Rebalance.
There could be five M&A-related intra-review deletions between now and the end of the year.
There could be more index changes in the December 2022 Rebalance too.

Lotte Chemical Close to Acquiring Iljin Materials

On 27 September, it was announced that Lotte Chemical (011170 KS) is close to acquiring a 53.3% stake in Iljin Materials (020150 KS) for about 2.7 trillion won (US$1.9 billion).
Iljin Materials has relatively high valuation multiples. Despite recent share price decline, its shares are trading at 32.4x P/E and 15.7x EV/EBITDA in 2022.
At such a high valuation premium (93% higher than current prices), there are going to be significant concerns that Lotte Chem may have overpaid for this acquisition.

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Sep 27

Daily Brief Event-Driven: Two Days Left Til Nikkei 225 Juggled Review Starts and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Two Days Left Til Nikkei 225 Juggled Review Starts
Bain Launches Hitachi Metals (5486) Tender Offer
CALB (3931 HK) IPO: Earliest Passive Flows & Stock Connect Inclusion in 2023
StubWorld: Swire/Cathay And Hong Kong’s “Opening”
S&P/ASX Index Rebalance Preview: A Few High Impact Adds
FTSE UK Quiddity Leaderboard Dec 22: Several High-Impact Intra-Review Changes Could Happen in 4Q22
EQD | Volatility Update: A Look at Global Indices – What Trades Make Sense?
Intouch: AIS’ Expanding Broadband And Expected Mobile Duopoly
A Detailed Summary of Hanwha’s DSME Acquisition Deal
Tetra Tech Outbids WSP

Two Days Left Til Nikkei 225 Juggled Review Starts

The Nikkei announced its Annual Nikkei 225 Average Review on 5 September. It was 3 OUT 3 IN as expected. Then they added Shizuoka Bank (8355 JP) to the mix.
ShizuGin will form a holding company, so out it goes on Wednesday. NIDEC (6594) goes in. Then SMC (6273) and (7741) replace Unitika (3103) and Oki Electric (6703) Friday.
Then ShizuGin goes back in Monday, and Maruha Nichiro (1333) is deleted. The “big trade” here? The ¥550bn+ funding trade. But the change in ADDs’ Real World Float is Real.

Bain Launches Hitachi Metals (5486) Tender Offer

We had the heads up days (or a week plus) ago, and now it is official. Bain launches its Tender Offer for Hitachi Metals (5486 JP) tomorrow at ¥2,181/share.
The company’s trade name will be changed to PROTERIALS (i.e. losing “Hitachi”) which should be fine. It was non-core anyway.
This is still a large-ish deal – up to ¥434bn. MktCap is ¥930bn. But minimum is only 56.8mm shares because they get the parent vote anyway. Done deal.

CALB (3931 HK) IPO: Earliest Passive Flows & Stock Connect Inclusion in 2023

CALB (3931 HK) is looking to raise between US$1.29bn-US$1.73bn by selling 265.85m shares at a price range of HK$38-51/share.
CALB (3931 HK) will not get Fast Entry to any indices but should be added to the HSCI and Stock Connect in March and to the FTSE All-World in June.
Peer performance has been fairly mixed in the recent past. Stock trading weak post listing could provide buying opportunities ahead of the passive inflows.

StubWorld: Swire/Cathay And Hong Kong’s “Opening”

After Hong Kong announced abandoning hotel quarantine for inbound travellers, Cathay Pacific (293 HK) gained 2.6% last Friday, but finished up just 1%. That probably sums up the situation.
Preceding my comments on Cathay and Swire Pacific (19 HK) 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%.

S&P/ASX Index Rebalance Preview: A Few High Impact Adds

At the December rebalance, we expect changes to the S&P/ASX 50 Index and S&P/ASX 200 (AS51 INDEX). Announcement is on 2 December with implementation on 16 December.
If added to the S&P/ASX 200 (AS51 INDEX), passive trackers will need to buy over 9 days of ADV on Monadelphous (MND AU) and ioneer Ltd (INR AU).
Shorts have dropped on nearly all potential adds and deletes over the last couple of months. With shorts at low levels, short covering will have limited impact at the rebalance.

FTSE UK Quiddity Leaderboard Dec 22: Several High-Impact Intra-Review Changes Could Happen in 4Q22

In this insight, we take a look at the potential index changes for FTSE 100 and FTSE 250 in the run up to the December 2022 Rebalance.
There are multiple FTSE 100 and FTSE 250 members involved in M&A situations and there could be many intra-review changes during 4Q 2022.
Most interestingly, the names leading the race to become intra-review ADDs seem to have decent volume impact.

EQD | Volatility Update: A Look at Global Indices – What Trades Make Sense?

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

Intouch: AIS’ Expanding Broadband And Expected Mobile Duopoly

Jasmine International PCL (JAS TB)‘s shareholders approved Advanced Info Service (ADVANC TB) acquiring its subsidiary Triple T Broadband, and to buy 19% of Jasmine Broadband (JASIF TB).
The deal, involving a total outlay of Bt32.4bn, remains subject to approval from JASIF unitholders and NBTC. AIS’ current market cap is Bt574bn.
Separately, the DTAC / True merger looks set to become a reality as it, ironically, does not require NBTC approval. A merger would create a duopoly and ultimately benefit AIS.

A Detailed Summary of Hanwha’s DSME Acquisition Deal

The acquisition will be carried out through a third-party allocation rights offering. DSME will issue 104M new shares, solely allocated to Hanwha’s six affiliates, which will own a combined 49.3%
This DSME acquisition will likely raise Hanwha’s holding ratio, potentially to more than 50%. What preemptive measures Hanwha will take will likely become a noteworthy subject from an investment perspective.
Hanwha Aerospace and Hanwha Systems will likely proceed with a capital increase. As their current cash capacity is quite limited, liquidity concerns will likely be raised in the market.

Tetra Tech Outbids WSP

On 24 September, Tetra Tech outbid WSP with a recommended 222p/share cash offer, a 7.8% increase vs. WSP’s and 110% premium to the start of the offer period.
The new offer represents 19.1x EV/Fwd EBIT and 25.7x Fwd P/E, and seems dilutive for Tetra Tech. Irrevocables and letters of intent amount to 27.53%.
Expect the shares to quickly close the spread at the beginning of the 26 September trading session and the market to possibly await a counterbid.

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Sep 26

Daily Brief Event-Driven: Pine Care Group – Another MGO and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Pine Care Group – Another MGO, Still Wrong Price Making One Wonder…
Merger Arb Mondays (26 Sep) – Fengxiang, Lifestyle, EVOC, DTAC/True, VNET, 111, Ramsay, Genex
New Pricing Rule for Appraisal Rights in ECO: Potential Arb Openings in DB Hitek
Hanwha Solutions: Biggest Restructuring Measures in 50 Years
Onewo (2602 HK): No Passive Flow or Stock Connect Inclusion
EQD | NIFTY Index: Option Selling Strategies for Short-Term Yield (RIL,SBIN,SBILIFE,COAL,INFY,BRIT)

Pine Care Group – Another MGO, Still Wrong Price Making One Wonder…

In early Feb2020, the #1 shareholder of HK-based elderly home care provider Pine Care Group (1989 HK) sold a 52% stake at HK$1.647, keeping 14.99%. That triggered an Unconditional MGO.
In Aug2022, much of the shareholder consortium which bought in 2020 agreed to sell 56.15% at HK$0.89/share to local privately-held developer Chinachem. That will trigger another Unconditional MGO.
The business has suffered under covid, but it is not clear why the business would be better now. Revenues will spike when Causeway Bay opens, but…. Sell.

Merger Arb Mondays (26 Sep) – Fengxiang, Lifestyle, EVOC, DTAC/True, VNET, 111, Ramsay, Genex

We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Indonesia, Malaysia, Thailand and Chinese ADRs.
Highest spreads – Shandong Fengxiang (9977 HK), Alliance Aviation Services (AQZ AU), Infomedia Ltd (IFM AU), Ramsay Health Care (RHC AU), 21Vianet Group (VNET US), 111 Inc (YI US).
Lowest spreads – OZ Minerals Ltd (OZL AU), Nitro Software Ltd (NTO AU), Tyro Payments (TYR AU), MACA Ltd (MLD AU), Link Net (LINK IJ), Dongzheng Automotive Finance (2718 HK).

New Pricing Rule for Appraisal Rights in ECO: Potential Arb Openings in DB Hitek

A South Korean lawmaker introduced legislation that would mandate that appraisal right exercise prices in split-off listings (equity carve-out) be based on asset/earnings value rather than market price (stock price).
We may find an arb opening in DB Hitek. The appraisal price based on the asset/earnings value is at an 11.31% premium to the last close.
If DB HiTek postpones the split-off listing to next year, FY22 earnings should be reflected. In this case, the appraisal price will be at a 90% premium.

Hanwha Solutions: Biggest Restructuring Measures in 50 Years

On 23 September, Hanwha Solutions announced a set of restructuring measures which are probably the biggest ever moves by the company in the past 50 years.
The spin-off of the Hanwha Galleria is a good move. Clearly, having both the renewable energy and a luxury department store business under one roof does not make much sense.
We also like the company’s move expand its U.S. solar module production capacity. The total amount of potential benefit could be nearly US$2 billion over the next decade.

Onewo (2602 HK): No Passive Flow or Stock Connect Inclusion

Onewo (2602 HK) is looking to raise between US$700m-US$784m by selling 116.714m shares at a price range of HK$47.1-52.7/share. Indications are that the IPO will be priced close to mid-point.
Given the domestic shares and unlisted foreign shares will not be converted to H-shares, there is no chance of MSCI inclusion and a small chance of FTSE inclusion.
Onewo (2602 HK) is also unlikely to be added to the HSCI and consequently will not be added to Stock Connect.

EQD | NIFTY Index: Option Selling Strategies for Short-Term Yield (RIL,SBIN,SBILIFE,COAL,INFY,BRIT)

We screen the NIFTY Index components for yield enhancing opportunites
We screen for expensive options and combine with stock performances to find the best candidates
We identity 6 stocks where selling short-term premium makes sense

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Sep 24

Daily Brief Event-Driven: Leapmotor (9863 HK) IPO – Stock Connect & Index Flows Could Provide Some Support and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Leapmotor (9863 HK) IPO – Stock Connect & Index Flows Could Provide Some Support
Softbank – So The Arm IPO Isn’t Looking All That Hot Then?
Shanghai/Shenzhen Northbound Connect: Weekly Moves (22 September 2022)
Shanghai/Shenzhen Southbound Connect: Weekly Moves (23 September 2022)
A Detailed Summary of Hanwha Solutions Demerger & Tender Offer
Porsche AG: IPO Set for Success
Itausa (ITSA4 BZ); Attractive NAV Discount, Dividend Yield & Portfolio Diversification Are Positives

Leapmotor (9863 HK) IPO – Stock Connect & Index Flows Could Provide Some Support

Leapmotor (9863 HK) is looking to raise between US$800m-US$1.03bn by selling 130.82m shares at a price range of HK$48-62/share. Between 30-39% of the shares will be taken by cornerstone investors.
The continued slide in its closest peers could put pressure on the stock post listing, though there could be some passive buying in December.
Leapmotor (9863 HK) could be added to the HSCI and Hang Seng Tech Index (HSTECH INDEX) in December. Stock Connect could come online in December too.

Softbank – So The Arm IPO Isn’t Looking All That Hot Then?

By Mio Kato

Apparently prospects for a high valuation on a potential Arm IPO are so staggeringly, AI-rifically good that Masayoshi Son is now sounding out Samsung on a strategic partnership.
Samsung itself has not been having the greatest time of late with Micron and SK Hynix making serious inroads against its prior technological leadership in memory.
So as desperate and desperate-er ponder an alliance we can only be thoroughly convinced that this move absolutely, positively has nooooothing to do with trying to prop up share prices.

Shanghai/Shenzhen Northbound Connect: Weekly Moves (22 September 2022)

Inside is a recap of movements in the last week relating to the Hong Kong Stock Exchange -Shanghai and Shenzhen Northbound Connect facilities, broken down by company and industry.
Overall, net outflow over the past week was ~US$1.4bn, split between Shanghai (-US$0.8bn) and Shenzhen (-US$0.6bn).
The largest inflows were into Tianqi Lithium (002466 CH) and Midea Group (000333 CH). The largest outflows were in East Money Information (300059 CH) and Kweichow Moutai (600519 CH).

Shanghai/Shenzhen Southbound Connect: Weekly Moves (23 September 2022)

Inside is a recap of movements in the last week relating to the Shanghai and Shenzhen-Hong Kong Stock Connect facilities, broken down by company and industry.
Overall, the net inflow over the past week was ~US$1.1bn, split (+US$0.8bn) for Shanghai and (+US$0.3bn) for Shenzhen.
The largest inflows were into Wuxi Biologics (2269 HK) and Tencent (700 HK). The largest outflows were in Geely Auto (175 HK) and HKEX (388 HK).

A Detailed Summary of Hanwha Solutions Demerger & Tender Offer

There is no unlocking of treasury shares, so a flow betting on dramatic value accretion will not occur. For tendering, the proration risk appears to be relatively high.
Passive trackers will sell at the close on February 24 and repurchase (likely only for Solutions) at the close on March 31. The flow size would be around 5.5x ADTV.
ECO risk wouldn’t be a concern as the new rule will grant appraisal/preemptive rights to the existing shareholders. Also, Hanwha hinted at the possibility of choosing private placement over ECO.

Porsche AG: IPO Set for Success

Volkswagen sets the price range for the Porsche AG IPO between €76.50 and €82.50. The books are covered several times. Porsche AG will begin trading on September 29.
Through a holding chain, the Pïech and Porsche families will control 25% of the votes of Porsche AG directly and 39.975% indirectly (total of 64.975%), with just a 24.275% economic interest.
The IPO looks set for success, with possible DAX inclusion, and pricing likely towards the top-end. This should favour Volkswagen’s re-rating and tighten the discount to NAV of Porsche SE.

Itausa (ITSA4 BZ); Attractive NAV Discount, Dividend Yield & Portfolio Diversification Are Positives

By Victor Galliano

Itausa has acquired a 10.3% stake in toll road company CCR, in a diversification move away from its core financials holdings; yet financials still account for 90%+ of holdings value
Itausa’s stated NAV discount is over 26%, and we believe this discount is slightly under-estimated; Itausa’s indirect XP stake adds to the NAV, implying a discount of close to 28%
Reinvesting the proceeds of XP disposals in CCR makes good diversification sense; aside from the historically high NAV discount, Itausa has an attractive LTM dividend yield of over 5%

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Sep 23

Daily Brief Event-Driven: LG Energy Flow Crunch with Additional Passives: K200/MSCI Up-Weight & LIT Inclusion and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

LG Energy Flow Crunch with Additional Passives: K200/MSCI Up-Weight & LIT Inclusion
S&P/ASX Quiddity Leaderboard Dec 22: Couple of High-Impact Intra-Review Changes Possible
Kito (6409) – KKR/Crosby Takeover Launches – High Premium in Weak Year, But Still Light to Value
Sands China (1928 HK): Positives And Negatives
Softbank Seeking A “Strategic Alliance” Between Samsung Electronics and ARM?
EQD | ASX200(AS51 Index): Fundamentals Strong but Hedge Long with Options Whilst Asian Risks Persist
Schneider Electric/Aveva: Recommended Minorities Buyout
Hong Kong CEO & Director Dealings: 22nd Sept – Pharmaron Beijing, Joinn Labs, Glory Sun Financial

LG Energy Flow Crunch with Additional Passives: K200/MSCI Up-Weight & LIT Inclusion

LG Energy’s locked shares approach 96-97% of SO. Now, we will see an additional passive flow equivalent to another 1% of SO: KOSPI 200/MSCI Standard up-weights and LIT inclusion.
Each passive impact is also substantial. The MSCI up-weight alone will cause an impact equivalent to 2.44x ADTV. It would be 2.20x for the KOSPI 200 and 1.03x for LIT.
For the KOSPI 200 December review, the event-driven flow will likely focus on up-weights, including LG Energy. For LIT, we should consider an aggressive LONG/SHORT with LG Chem.

S&P/ASX Quiddity Leaderboard Dec 22: Couple of High-Impact Intra-Review Changes Possible

In this insight, we take a look at the potential index changes for S&P ASX 200, 100, 50, and 20 in the run up to the December 2022 Rebalance.
Tassal (TGR AU) and Nearmap Ltd (NEA AU) could get deleted from ASX200 before the December Rebalance, triggering high-impact intra-review additions. There should be two changes in the Review itself.
Pilbara Minerals (PLS AU) is close to becoming an ASX 50 ADD and Lendlease Group (LLC AU) is close to becoming an ASX 50 DEL in the December 2022 review.

Kito (6409) – KKR/Crosby Takeover Launches – High Premium in Weak Year, But Still Light to Value

KKR-Owned Crosby got SAMR approval to buy Kito Corporation (6409 JP) several days ago apparently and has launched its deal. It will be a 21-day tender. Very quick.
It was a strong premium, but still a light price, at announcement. And that was when USD/yen was lower. Since then, earnings and forecasts are way up. But price unchanged.
What looked like a likely candidate for bump agitation has seen none (that I am aware of) so this is pretty straightforward.

Sands China (1928 HK): Positives And Negatives

Macau gaming companies gained this week as Hong Kong is expected to ease Covid restrictions, with Macau expected to follow suit.
Last week, the six incumbent Macau gaming operators submitted tenders for the gaming concessions, together with last-minute interloper, the Genting Group.
Sands China (1928 HK) has borrowed heavily and also leads other Macau gaming plays in dividends paid out to shareholders. This may not be lost on Macau officials.

Softbank Seeking A “Strategic Alliance” Between Samsung Electronics and ARM?

Softbank’s Masayoshi Son is seeking a “strategic alliance” between Samsung Electronics (005930 KS) and ARM.
Masayoshi Son plans to visit South Korea next month to meet with Samsung’s Lee Jae-Yong to discuss a potential strategic alliance between Samsung and ARM.
Although the exact details of the investment stake in ARM remain uncertain, the probabilities are rising that Samsung could spend billions of dollars to buy a minority stake in ARM

EQD | ASX200(AS51 Index): Fundamentals Strong but Hedge Long with Options Whilst Asian Risks Persist

Australia’s economy is robust and will benefit from long term Asian Growth
Short-Term risks are increasing and ASX200 will not be immune
Hedge longs using short term options to avoid any short-term turbulence

Schneider Electric/Aveva: Recommended Minorities Buyout

Schneider has agreed a 3,100p (+13p interim) cash offer for the remaining 40.86% of AVEVA (41% premium, 26.7x EV/Fwd EBIT, 30.5x Fwd P/E), which some dub opportunistic.
The offer price is in line with average multiples for the last 5Y, and there’s execution risk in the model transition of AVEVA, but riches may lie ahead.
Gross spread is +0.8% (+interim), the market expects a sweetening (no large shareholder has irrevocably undertaken to tender); the daily average GBP volume since 23 August has been c.£62 million.

Hong Kong CEO & Director Dealings: 22nd Sept – Pharmaron Beijing, Joinn Labs, Glory Sun Financial

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. However, such disclosures are by no means an absolute.
These insights may also flag those companies where shares have been pledged. Stocks mentioned include Pharmaron Beijing (3759 HK), Joinn Laboratories (H) (6127 HK), and Glory Sun Financial Group (1282 HK).

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Sep 22

Daily Brief Event-Driven: Central Glass (4044 JP) – Huge Buyback Tender and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Central Glass (4044 JP) – Huge Buyback Tender, Meant For Murakami-San’s Exit, Not Yours
But Wait … Even More Penalties In The Link Admin/D&D Situation
Chubu Steel Plate (5461) – Unusual TOPIX Inclusion Possibility
True/DTAC Pop As Council Of State Rules NBTC Has No Teeth
Fengxiang (9977 HK): MGO Expected To Follow Judicial Auction
DTAC/True Merger: Council of State’s Decree Paves the Way for Completion
Vistry/Countryside Partnerships: Agreed Offer
EQD | SX7E(SX7E Index): Value or Value Trap? Use High Vols to Sell Premium and Play the Range
ActivistTalk: Is Bed Bath & Beyond Heading For Bankruptcy? Altman Versus The Bond Market
Grupo Gilinski – Grupo Sura; Focus on BanColombia (CIB US)

Central Glass (4044 JP) – Huge Buyback Tender, Meant For Murakami-San’s Exit, Not Yours

Activist Murakami-san and entities spent 4+ years going from 2% to 30% of Central Glass (4044 JP). In that period, they helped management change governance.
There were buybacks, asset sales, cross-holding sale decisions, and a new Mid-Term Management Plan. The stock went up, so now it is time to get out.
True to Murakami-san style/form, it is an own-share Tender Offer by the TargetCo which means most other active holders can’t really participate. It’s high-quality greenmailgagement.

But Wait … Even More Penalties In The Link Admin/D&D Situation

Earlier this week, Link Administration (LNK AU) rejected Dye & Durham’s revised proposal to factor in any redress payments from the UK’s FCA in regards to the Woodford Fund.
FCA has now assessed an appropriate penalty of £50mn in addition to the previously announced restitution payment of £306.1mn.
The FCA is all but telegraphing it will default LFSL unless Link steps in. Link says it has made no such commitment. D&D should walk.

Chubu Steel Plate (5461) – Unusual TOPIX Inclusion Possibility

Today, Nagoya Premier-listed Chubu Steel Plate (5461 JP) announced that it had applied today to be listed in Tokyo.
It is one of very few Japan names not listed in Tokyo. A TSE listing examination will be conducted, and there is a possibility it moves to TSE Prime.
There are 6 key segment transfer and listing requirements to gain a listing in TSE Prime. Chubu Steel Plate is really close.

True/DTAC Pop As Council Of State Rules NBTC Has No Teeth

According to media reports, Thailand’s Council of State has ruled the NBTC has no authority to approve or reject the True Corp (TRUE TB) / Total Access Communication (DTAC TB) merger.
The NBTC can prescribe measures to govern the deal but these appear almost of no consequence.
The ruling is a positive development for the merger getting over the line. Both stocks enjoyed strong gains today.

Fengxiang (9977 HK): MGO Expected To Follow Judicial Auction

The controlling shareholders of Shandong Fengxiang Co Ltd-H (9977 HK), a company engaged in chicken breeding, slaughtering, and processing, are unable to meet their debts.
As such, these shareholders who hold 70.92% of shares out in Fengxiang, via domestic shares, have been forced into a judicial auction, the completion of which may trigger an MGO.
Taking pointers from Dongzheng Automotive Finance (2718 HK)‘s recent auction means we back out a possible payment around late December – on the assumption an unconditional MGO is triggered.

DTAC/True Merger: Council of State’s Decree Paves the Way for Completion

The press reports that the Council of State has stated that the regulator, NBTC, can only prescribe measures to govern the Total Access Communication (DTAC TB)/True Corp Pcl (TRUE TB) merger.
The Council of State decree paves the way for the merger to complete and the launch of the VTOs. The NBTC remedial measures will likely focus on consumer protection measures.
The current share price ratio is 9.150x vs the swap ratio of 10.221x. At last close, DTAC and True’s gross spread to the VTO price is 4.4% and 1.8%, respectively.

Vistry/Countryside Partnerships: Agreed Offer

FTSE-250 constituent Vistry Group (VTY LN) has agreed to buy rival Countryside Partnerships (CSP LN) in a recommended cash&stock deal that values embattled Countryside at c.£1.25 billion (lower than previous offers).
Consideration is 1 CSP LN=0.255 VTY LN+60p, 9.1% premium, 7.0x EV/Fwd EBITDA and 1.3x P/Fwd BV, which seems cheap. The sector is pricing in many potential bad news.
Gross spread is +2.1%. It has only been negative during three days since the deal announcement. I would wait for the spread to become negative before taking a position.

EQD | SX7E(SX7E Index): Value or Value Trap? Use High Vols to Sell Premium and Play the Range

European banks are screening cheap and the sell side are once again banging the drum on the upside
Recession risks in broader economy are likley to counteract the positive effects of rate rises
Implied vols have moved higher, representing an oportunity to sell premium

ActivistTalk: Is Bed Bath & Beyond Heading For Bankruptcy? Altman Versus The Bond Market

By Robert Sassoon

Bed Bath & Beyond’s fundamentals have continued deteriorate resulting in the departure of the man brought in to turn the struggling home goods retailer less than 3 years ago
Amid an unfriendly operating environment and short term liquidity issues, the specter of bankruptcy for this one-time iconic retailer has been raised
The Altman Z-Score model which has decent track record for bankruptcy prediction, suggests there is no imminent danger. If correct, there is a potentially lucrative trade in BBBY’s bonds

Grupo Gilinski – Grupo Sura; Focus on BanColombia (CIB US)

By Victor Galliano

For Grupo Gilinski to achieve shareholder control of BanColombia seems increasingly unlikely, and there increased opposition from Grupo Sura and the Grupo Empresarial Antioqueño (GEA)
Nonetheless, Gilinski is effectively creating shareholder value by behaving like an activist investor putting pressure on management teams, particularly in BanColombia and in the other core components of the GEA
BanColombia is delivering improved fundamental performance, as seen in 1Q22 and 2Q22 results, with 2022E ROE guidance of c20% yet to be reflected in its modest PBV ratio of 0.9x

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Sep 21

Daily Brief Event-Driven: Raysum (8890 JP) Mystery Bidder Is a Hedge Fund – And That Makes It More Interesting and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Raysum (8890 JP) Mystery Bidder Is a Hedge Fund – And That Makes It More Interesting
Straits Times Index Quiddity Leaderboard Mar 23: Sembcorp/Keppel Situation Could Cause Index Changes
Fengxiang’s Judicial Auction Set for 10 October, Potential MGO

Raysum (8890 JP) Mystery Bidder Is a Hedge Fund – And That Makes It More Interesting

Raysum Co Ltd (8890 JP) has been in a weird kind of limbo for well over a year. The Chairman/Founder resigned late last year for health reasons.
The company needed to take action to stay listed on TSE Standard. There was a plan to transfer 60+% of the shares to a foundation, through an odd arrangement.
Then a hedge fund stepped up and said “I’ll have 64% of the company at a near life-time high.” So now we have an interesting deal. And interesting potential future.

Straits Times Index Quiddity Leaderboard Mar 23: Sembcorp/Keppel Situation Could Cause Index Changes

The FTSE Straits Times Index (STI) (STI INDEX) has a quarterly rebalancing cycle with index reviews performed in March, June, September, and December every year.
The March and September reviews are complete index reviews while the June and December reviews are only for new listings.
In this insight, we take a look at the potential index changes that can take place between now and the end of the March 2023 index review.

Fengxiang’s Judicial Auction Set for 10 October, Potential MGO

On 16 September, the administrator published the details for the auction of Shandong Fengxiang Co Ltd-H (9977 HK) controlling shareholder’s 70.92% stake in Alibaba Judicial Auction.
If the auction is successful and results in any person and a group of persons acting in concert holding 30%+ of the voting rights, it will result in an MGO.
The base bid implies an MGO price of HK$1.563 per H Share, a 103.0% premium to the last close. The auction will be held from 10 October to 11 October.

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Sep 20

Daily Brief Event-Driven: Toshiba (6502 JP) Getting Closer to Crunch Time So Ongoing News “Leaks” Likely and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Toshiba (6502 JP) Getting Closer to Crunch Time So Ongoing News “Leaks” Likely
OZ Minerals May Be Narrowing the Price Gap to a BHP Deal
Toshiba – Japan Industrial Partners The Only Real Bid?
Link’s On Again-Off Again Scheme Is All but Off
Trading Angles of Hyundai Green Food Demerger, with Potential Tender & Hive-Off

Toshiba (6502 JP) Getting Closer to Crunch Time So Ongoing News “Leaks” Likely

Three interviews and comments by Senior Toshiba Boardmembers (chairperson and head of Special Committee) and the CEO prep the ground for a full company deal, or no deal.
If no deal, there’s downside to the 5yr average Toshiba/Peers ratio. If you see 50% deal probability, at mid ¥6000s or better, IRRs are OK. But there is jump risk.
I don’t see the activists just deciding to bail en masse if no deal. I think they take it further, which means I think the Board wants a deal.

OZ Minerals May Be Narrowing the Price Gap to a BHP Deal

Six+ weeks ago, BHP Group Ltd (BHP AU) approached OZ Minerals Ltd (OZL AU) with a bid of A$25/share. Oz very quickly rejected it and said it was worth more.
The back and forth immediately post-rejection was not conciliatory. My expectation was that if they came back quickly, they’d have to pay A$30. But coming back quickly was tough.
There are hints now that may be the price. But it may not be. It will take time.

Toshiba – Japan Industrial Partners The Only Real Bid?

By Mio Kato

Since the second of Jun Toshiba is down 14.7% while TOPIX is up 0.7%.
This underperformance against TOPIX and industry peers suggests that some of the implied acquisition premium has dissipated.
With reasonable potential for some form of bid coming through we consider the news about Japan Industrial Partners growing its consortium.

Link’s On Again-Off Again Scheme Is All but Off

Dye & Durham/DND has proposed a revised Link Administration (LNK AU) offer to address any FCA redress payments. Around A$1.00 per share will hang on the outcome of the FCA investigation.
The Link Board has said it cannot recommend the revised proposal based on value, structure and alternatives available to Link. We agree with the Board’s view.
The scheme is all but dead. The shares are now a back-end play and remain attractive for value investors.

Trading Angles of Hyundai Green Food Demerger, with Potential Tender & Hive-Off

The value accretion that will occur by unlocking treasury shares will be more significant than Hyundai Dept. The treasury shares account for 10.64%, compared with 6.61% for Hyundai Dept.
Neither Holdco nor Opco will likely remain in the KOSPI 200 after relisting. So we cannot expect PASSIVE inflow at the time of relisting.
A tender will likely follow. However, neither is available for shorting. So, we should use Opco’s overheated price adjustment as an exit timing for our positions aimed at value accretion.

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Sep 19

Daily Brief Event-Driven: Index Rebalance & ETF Flow Recap: STAR50 and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Index Rebalance & ETF Flow Recap: STAR50, PCOMP, SET50, AMFI, ALX
Merger Arb Mondays (19 Sep) – Link Admin, Ramsay, Alliance, Genex, Moya, Singapore Medical, VNET
FTSE Straits Times Index (STI): Quiddity Primer
3Q Dividend Estimates of Those with SSF for Cash & Carry Arb in Korea
OZ Minerals Could Get an Improved Offer from BHP
That’s It Then As Link Admin Rejects D&D’s Revised Terms

Index Rebalance & ETF Flow Recap: STAR50, PCOMP, SET50, AMFI, ALX

It was a busy week with a bunch of index rebalances being implemented at the close of trading on Friday.
We list out potential changes to the STAR50 INDEX, Philippines Stock Exchange PSEi Index (PCOMP INDEX) and SET50 INDEX at the upcoming rebalances.
There was a large outflow from the iShares MSCI ACWI ETF (ACWI US) for yet another week.

Merger Arb Mondays (19 Sep) – Link Admin, Ramsay, Alliance, Genex, Moya, Singapore Medical, VNET

We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Indonesia, Malaysia, Thailand and Chinese ADRs.
Highest spreads – Link Administration (LNK AU), Alliance Aviation Services (AQZ AU), 21Vianet Group (VNET US), Ramsay Health Care (RHC AU), Infomedia Ltd (IFM AU), Genex Power Ltd (GNX AU).
Lowest spreads – Nitro Software Ltd (NTO AU), Tyro Payments (TYR AU), Nearmap Ltd (NEA AU), MACA Ltd (MLD AU), Xiamen International Port H (3378 HK), Link Net (LINK IJ).

FTSE Straits Times Index (STI): Quiddity Primer

FTSE Straits Times Index (STI) (STI INDEX) consists of the 30 largest companies listed in the Singapore Stock Exchange (SGX).
This is one of the well-known national blue-chip indices in the Asia-Pacific region.
In this insight, we will have a look at the selection criteria and the historical price performance of past Rebalance Events.

3Q Dividend Estimates of Those with SSF for Cash & Carry Arb in Korea

Juice for cash & carry arbitrage doesn’t seem like much. Several names in contango, but the basis widening isn’t at a sufficiently arb-tradable level.
Reverse cash & carry isn’t all that attractive either, but it certainly does offer more juice, even with borrow fees. Ssangyong C&E, SKT, Shinhan, and KB deserve our attention.
A bit uncertain is whether the pattern of “LONG Spot until ex-dividend and Conversion to Short” through cash & carry will repeat itself this time.

OZ Minerals Could Get an Improved Offer from BHP

Bloomberg reported that BHP Group Ltd (BHP AU) has been considering raising its bid for OZ Minerals Ltd (OZL AU). OZ is pushing BHP to increase its offer to A$30.
The OZ Board has a strong justification for a higher offer as BHP’s acquisition of OZ would tick the boxes of future-facing commodities and potential operational synergies.
Rio Tinto Ltd (RIO AU) recently increased its bid to minority shareholders of Turquoise Hill Resources (TRQ CN). This increases the probability that BHP will return with a sweetened offer.

That’s It Then As Link Admin Rejects D&D’s Revised Terms

After 23 months of negotiations, various bids from various parties, culminating in a protracted on-again, off-again, negotiation with Dye & Durham, Link Administration (LNK AU) has called it a day.
D&D arguably did the right thing and tabled a revised proposal to account for any enforcement process after the UK’s FCA raised redress payments. Link has rejected the revised terms.
Link will now pursue an in-specie distribution of a minimum of 80% of Link’s shareholding in PEXA Group (PXA AU).

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Sep 18

Daily Brief Event-Driven: A Walkthrough of Hyundai Department Store Demerger Event and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

A Walkthrough of Hyundai Department Store Demerger Event
Last Week in Event SPACE: NTT, Frasers Hospitality, Genting/Macau, United Tractor, Arb Shockers
(Mostly) Asia-Pac Weekly Risk Arb Wrap: Moya, Singapore Medical, Link Admin, Giordano,111 Inc, VNET
Hyundai Department Store & Hyundai Greenfood To Conduct Equity Spin-Offs to Create Holdcos & Opcos

A Walkthrough of Hyundai Department Store Demerger Event

This is an equity spinoff where the existing shareholders receive shares in the spun-off company. But this creates two LISTED companies. In such a case, there won’t be appraisal rights.
PASSIVE’s selling flow towards the trade suspension tends to be offset by ACTIVE’s buying flow aiming for value accretion. So, developing a timely entry/exit between these opposing flows is critical.
Holdco’s 30% rule dynamic generally, in relative terms, leads to an increase in the value of Opco’s stake and a decline in the value of Holdco’s stake.

Last Week in Event SPACE: NTT, Frasers Hospitality, Genting/Macau, United Tractor, Arb Shockers

NTT (9432 JP) results were better than Softbank Corp’s and KDDI’s. The good “drift trade” may still be to be long NTT vs a basket of KDDI and Softbank Corp.
The Frasers Hospitality (FHT SP) Scheme failed. The non-vocal minority simply didn’t show up. Maybe apathy. Maybe a holiday season. Maybe lack of premium paid encouraged people to not vote.
In a surprise move, Genting Bhd (GENT MK)– or Genting Malaysia (GENM MK) – has joined the six incumbents in bidding for new casino licences in Macau.

(Mostly) Asia-Pac Weekly Risk Arb Wrap: Moya, Singapore Medical, Link Admin, Giordano,111 Inc, VNET

There are 49 – 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 this week: Anthoni Salim’s Exit Offer for Moya Holdings Asia (MHAL SP); 111 Inc (YI US)‘s MBO, and Singapore Medical (SMG SP)‘s MBO.
Key updates took place for Frasers Hospitality Trust (FHT SP),Link Administration (LNK AU), Giordano International (709 HK), Shidax Corp (4837 JP), and VNET (VNET US).

Hyundai Department Store & Hyundai Greenfood To Conduct Equity Spin-Offs to Create Holdcos & Opcos