Event-Driven

The data is largely unchanged since the Nikkei 225 Sep Annual Review Predictions – 3 In, 3 Out set of predictions published 15 days ago.
The consultation results are out. They are as expected too. This has the hallmarks of a VERY well-signalled trade. But it’s a biggie. The funding trade alone is ¥600bn.
Because of the data, market conditions, and the variability of choice at the edges, I believe that warrants particular strategy.

KOSPI Size Index Series Rebalancing in September: Eight Strong Targets

Eight stocks are highly likely to migrate with a substantial passive flow. Compared to the early phase of the screening period, GS Engineering & Construction newly made the list.
Most names should show a quite substantial passive flow (x ADTV). In particular, KCC Corp and BGF Retail deserve our special attention for their expected passive impact.
The flow occurs on high potential migration stocks about 20 days before the effective date. So I would start building Long/Short Basket positions with the above eight names around mid-August.

SK REITs Issues a Rights Offering Worth 210 Billion Won

SK REITs (395400 KS) announced today that it will conduct a rights offering worth 210 billion won, representing 25% of its current market cap of 829 billion won.
The rights offering will allow SK REITs to acquire SK U Tower. The rights offering price is 5,060 won, which is 5.4% discount to the current price of 5,350 won.
We would subscribe to this SK REITs rights offering. The SK U Tower in Bundang has excellent location and it has SK Hynix as the main tenant.

EVOC Subject to a Third Privatisation Attempt?

EVOC Intelligent Technology Company Limited H (2308 HK) entered a trading halt pending the release of an announcement under the Hong Kong Code on Takeovers and Mergers on 1 August.
It is likely that after two failed attempts, Mr Chen Zhi Lie, the ultimate controlling shareholder, will try a third time to privatise EVOC.
The previous offer of HK$1.50 per H Share in 2020 marginally missed the 90% minimum acceptance condition. Expect a similar structure with a likely slightly higher offer price.

Hyundai Motor 2P Reversion Trading Relative to Ordinary

The possibility that Ord’s current outperformance remains a structural trend is not high because of the 2P discount close to its YTD high and a price reversal with 1P.
This price reversal has been a strong signal for reversion because 2P receives more dividends by ₩50 per share along with a liquidity premium compared to 1P.
Also, the dividend yield difference with Ord is not small from a historical point of view. So, we should expect 2P reversion not only to 1P but Ord.

Potential Interest in Quilter

UK wealth manager Quilter PLC (QLT LN) is reportedly set to receive takeover bids from at least four different suitors, according to the Daily Mail. One of them is Natwest.
Interest in Quilter is not anything new: market share, investments in technology and a new platform make it appealing, in spite of headwinds for the industry.
My 136p TP is based on an average of comps-based P/E multiples. Considering valuation and potential interest, I would be long the shares.

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Aug 02

Daily Brief Event-Driven: Cayman Islands: Headcount To Be Decapitated On 31 August and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Cayman Islands: Headcount To Be Decapitated On 31 August
Nikkei 225 Index Rebalance Preview: Consultation Conclusions & Potential Changes in Sep & March
Hong Kong CEO & Director Dealings – 1st August 2022
Miniso’s Word Against Short Seller Blue Orca’s Facts
HS Holdings (8699 JP) – Huge Q1, Even Better Q2 Ahead, The 2nd To Last Asset Sale… And a Pawnshop?
KT Corp: Close to Selling Its Subsidiary KT Submarine to LS Cable & System
Minority Shareholders Go Activist on DB Hitek

Cayman Islands: Headcount To Be Decapitated On 31 August

The Companies (Amendment) Act 2021 of the Cayman Islands (Amendment Act), which will come into force on 31 August 2022, will abolish the current ‘headcount test’.
Those companies incorporated in the Cayman Islands, and subject to a members’ Scheme of Arrangement, were previously required to satisfy the headcount test under section 86 of the Companies Act.
This development clarifies previous uncertainty/ambiguity which could arise, with ‘take private’ deals of Cayman-incorporated, Hong Kong-listed companies, where a Scheme is the favoured privatisation path.

Nikkei 225 Index Rebalance Preview: Consultation Conclusions & Potential Changes in Sep & March

With the review period for the September rebalance of the Nikkei 225 (NKY INDEX) complete, we take a look at the potential inclusions and exclusions for the index.
The conclusions of the market consultation have been announced and that will mean we switch to a semi-annual rebalance. So we take a look at potential changes in March 2023.
The announcement of the changes for the next rebalance should be made in the first week of September and will be implemented at the close on 30 September.

Hong Kong CEO & Director Dealings – 1st August 2022

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 also flag those companies where shares have been pledged, both recently and ongoing.

Miniso’s Word Against Short Seller Blue Orca’s Facts

By Oshadhi Kumarasiri

Blue Orca issued a damning short-seller report on Miniso (MNSO US) on the 25th of July 2022, stating that the company’s asset-light and high-margin franchise business is mostly a lie.
Miniso responded rather quickly but its response lacks evidence and does not do anything to contradict the facts presented by the short seller.
Thus, it is Miniso’s word against Blue Ocra’s facts and it is quite obvious which side investors should take.

HS Holdings (8699 JP) – Huge Q1, Even Better Q2 Ahead, The 2nd To Last Asset Sale… And a Pawnshop?

Thursday post-close, HS announced Q1 earnings, and Khan Bank Q2 earnings. Both magnificent. Book Value is up HUGE, and combined HS Q1-Khan Q2 is ¥7.7bn – 20% of mkt cap.
On Friday 29 July, HS Holdings (8699 JP) announced it had sold HS Debt Collection Agency – the last “earning asset” except for the 55% stake in Khan Bank.
This lifts shadow book value even higher… Deep value with a catalyst. BUT… in an otherwise unannounced postscript to Q1 earnings, HS announced it bought a stake in a… pawnshop?

KT Corp: Close to Selling Its Subsidiary KT Submarine to LS Cable & System

Hankyung Business Daily reported today that KT Corp (030200 KS) is close to selling its 36.9% controlling stake in Kt Submarine (060370 KS) to LS Cable & System.
Once the KT Submarine deal is completed, this could positively impact KT Corp’s dividends.
KT Corp’s selling of its controlling stake in KT Submarine would fit along its restructuring plans to sell off some businesses that are considered non-core.

Minority Shareholders Go Activist on DB Hitek

The minority shareholders of DB Hitek have started to go activist on the company. They are initially requesting the company to get access to its shareholder list.
Many minority shareholders are suspicious that DB Inc may be trying to intentionally lower the share price of DB Hitek through a physical division split off.
DB Hitek’s share price has declined nearly 48% since its 52 week highs in January 2022. The valuation multiples of the company have declined to more attractive levels.

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Aug 01

Daily Brief Event-Driven: SenseTime (20 HK): Lock-Up Expiry Done; Stock Connect Done; Passive Inflows Next and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

SenseTime (20 HK): Lock-Up Expiry Done; Stock Connect Done; Passive Inflows Next
Yashili’s Pre-Condition EGM Set for 16 August
The Cayman Islands to Remove the Headcount Test on 31 August
Merger Arb Mondays (01 Aug) – Genex, Yashili, Link Admin, VNET, Ramsay, Alliance Aviation
Minebea Mitsumi Tender for Honda Tsushin Kogyo (6826)
Remgro/Mediclinic: Healthier Offer
Untangling ACS Holding Chain

SenseTime (20 HK): Lock-Up Expiry Done; Stock Connect Done; Passive Inflows Next

SenseTime Group (20 HK) stock has been crushed following the lock-up expiry at the end of June with the stock now trading 40% below the IPO price.
The company has recently bought back stock providing some support. More importantly, SenseTime Group (20 HK) was included in Southbound Stock Connect on 29 July.
We expect a big increase in the free float adjustment factor (FAF) in the Hang Seng Indexes at the September rebalance that will provide some much needed passive inflows.

Yashili’s Pre-Condition EGM Set for 16 August

The approval by Yashili International Holdings (1230 HK) independent shareholders of the proposed transactions at the 16 August EGM is a pre-condition to the HK$1.20 per share privatisation proposal.
Shareholders will pass the ordinary resolutions at the EGM so that they can vote on the attractive privatisation proposal. The key risk is timing around the satisfaction of the pre-conditions.
China Mengniu Dairy Co (2319 HK)’s offer remains attractive in the context of multiples and historical share prices. At the last close, the gross spread to the offer is 10.1%.

The Cayman Islands to Remove the Headcount Test on 31 August

After a prolonged delay, the Cayman Islands legislative gazette was published on 29 July, which stated that the amended Cayman Islands Act would come into force on 31 August.
The Act will remove the headcount test for schemes, eliminating a layer of uncertainty for controlling shareholders wishing to privatise listed Cayman-incorporated companies.
In light of this development, we look at current active privatisations, past failed privatisations and rumoured transactions which stand to gain a new lease of life from this Act.

Merger Arb Mondays (01 Aug) – Genex, Yashili, Link Admin, VNET, Ramsay, Alliance Aviation

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.
The highest spreads are 21Vianet Group (VNET US), Alliance Aviation Services (AQZ AU), Resapp Health (RAP AU), Ramsay Health Care (RHC AU), Yashili International Holdings (1230 HK), Link Admin.
Lowest gross spreads are Hwa Hong Corp (HWAH SP), Excelpoint Technology (EXLP SP), Giordano International (709 HK), MyDeal.com.au Ltd (MYD AU), Cocoaland Holdings (COLA MK), MACA Ltd (MLD AU).

Minebea Mitsumi Tender for Honda Tsushin Kogyo (6826)

Electronics Parts and Devices manufacturer Minebea Mitsumi (6479 JP) has announced a 25% premium Tender Offer to take over connector-maker Honda Tsushin Kogyo (6826 JP).
It is not an overwhelming bid, but is supported by Panasonic Corp (6752 JP) which owns an equity affiliate stake, and crossholders and friendly shareholders hold a lot.
This looks like it will complete, despite being a little light on price.

Remgro/Mediclinic: Healthier Offer

After four prospective offers from a Remgro-led consortium, Mediclinic’s Board is to recommend the latest one: 504p/share in cash, cum dividend. The PUSU deadline has been extended until 5 August.
The offer values Mediclinic at c. 10x EV/Fwd EBITDA, both above the median of comparables and the failed offer for Spire. At 35% premium, it seems reasonable, but not overly generous.
After four proposals, I doubt the consortium will increase its offer, and investors will be happy to part with the cash. Gross spread is 3.92%. Long MDC LN.

Untangling ACS Holding Chain

ACS is simplifying its corporate structure: it has acquired the minorities in CIMIC, increased its stake in Hochtief and is buyer for any shares in Hochtief owned by Atlantia.
Thiess is now acquiring MACA and could also be a candidate for acquisition by the parent.
I see value in ACS. Further rationalisation in the holding structure would be a catalyst for the reduction of the discount.

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Jul 31

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

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Last Week in Event SPACE: Mapletree, Alibaba, Australian Unity Office
Index Rebalance & ETF Flow Recap: MSCI, S&P/ASX, Alibaba, SK Tel, Thai Life Insurance
(Mostly) Asia-Pac Weekly Risk Arb Wrap: Genex, MACA, Australian Unity Office, Mapletree Commercial
PCOMP Index Rebalance: Semirara Mining (SCC) Replaces Security Bank (SECB)
Weekly Deals Digest (31 Jul) – Ramsay, Genex, MACA, Yancoal, Yashili, Thai Life, Hongjiu Fruit, WCP

Last Week in Event SPACE: Mapletree, Alibaba, Australian Unity Office

Given recent corporate events in S-REIT land, there could be some considerable money to be allocated to the sector near-term
Alibaba (ADR) (BABA US) / Alibaba Group (9988 HK) issued an announcement it would pursue a primary listing on the HKEX. This will make BABA Southbound-eligible
At 0.81x newly-lowered book value, Australian Unity Office Fund (AOF AU) is trading at a relatively low multiple.

Index Rebalance & ETF Flow Recap: MSCI, S&P/ASX, Alibaba, SK Tel, Thai Life Insurance

Last Friday saw the end of the review period for the upcoming rebalance of the MSCI, NIFTY, NKY and STAR50 indices, among others.
The coming week has the implementation of the Philippines Stock Exchange PSEi Index (PCOMP INDEX) and NIFTY100 Index rebalances at the close on 5 August.
There were big inflows to the Tracker Fund of Hong Kong Ltd (2800 HK) last week with over US$500m flowing in.

(Mostly) Asia-Pac Weekly Risk Arb Wrap: Genex, MACA, Australian Unity Office, Mapletree Commercial

There are 44 – 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 this week on Smartkarma. The Scheme for Genex Power Ltd (GNX AU) ; and the off-market takeover for MACA Ltd (MLD AU).
Key updates took place for: Australian Unity Office Fund (AOF AU) and Mapletree Commercial Trust (MCT SP).

PCOMP Index Rebalance: Semirara Mining (SCC) Replaces Security Bank (SECB)

Semirara Mining And Power Corp (SCC PM) will replace Security Bank (SECB PM) in the Philippines Stock Exchange PSEi Index (PCOMP INDEX) at the close of trading on 5 August.
Passive trackers will need to buy 5.5 days of ADV on Semirara Mining And Power Corp (SCC PM) and sell nearly 30 days of ADV on Security Bank (SECB PM).
Historically, the adds have outperformed the deletes and there has been a pop/drop in the adds/deletes the day after announcement. Square off existing pre-positions by mid week.

Weekly Deals Digest (31 Jul) – Ramsay, Genex, MACA, Yancoal, Yashili, Thai Life, Hongjiu Fruit, WCP

A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
ECM developments – Thai Life Insurance (TLI TB)‘s underwhelming debut, Chongqing Hongjiu Fruit (CHF HK) is pre-marketing a US$200-300m IPO, WCP (WCP KS) pushed back its US$692m IPO to mid-September.
Event-Driven developments at Ramsay Health Care (RHC AU), Yancoal Australia (YAL AU), Genex Power Ltd (GNX AU), MACA Ltd (MLD AU), Yashili International Holdings (1230 HK), China Vast, Hwa Hong.

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Jul 30

Daily Brief Event-Driven: Advantest (6857) – Strong SoC Sales and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Advantest (6857) – Strong SoC Sales, Record Profits, Bullish Guidance, and a Buyback (+ Index Flow)
Compact Summary of Hanwha Group Reorganization
End of Mandatory Lock-Up Periods for 49 Companies in Korea in August 2022
ACS/Thiess/MACA: Generous Premium

Advantest (6857) – Strong SoC Sales, Record Profits, Bullish Guidance, and a Buyback (+ Index Flow)

Advantest Corp (6857 JP) yesterday announced Q1 results, with Revenues/OP/NP at record levels, a H1 div hike of 30%, guidance well ahead of consensus, and a buyback.
They also announced a Mid-Term Plan revision which shows forward guidance better than consensus.
The buyback is smaller than the last one BUT float is not what you think it is. Understanding float dynamics here is key.

Compact Summary of Hanwha Group Reorganization

Hanwha Group announced another large-scale reorganization directly involving Hanwha Corp, Hanwha Aerospace, and Hanwha Impact. Several deal contracts arise, two of which require shareholder approval. However, none grants appraisal rights.
The market responded quite positively to this. Direct parties to the reorganization were Hanwha Corp and Hanwha Aerospace, up 7.83% and 19.93%, respectively, on Friday.
This event has little room for event trading for its size. We have no choice but to approach this event with outright momentum trading, which inevitably increases the risk-reward ratio.

End of Mandatory Lock-Up Periods for 49 Companies in Korea in August 2022

We discuss end of the mandatory lock-up periods for 49 stocks in Korea in August 2022, among which 3 are in KOSPI and 46 are in KOSDAQ.
These 49 stocks on average could be subject to further selling pressures in August and could underperform relative to the market.
Among these 49 stocks, the top five market cap stocks include Wemade, HPSP, Sungeel Hitech, Wemade Max, and Eoflow. These companies could be exposed to greater selling pressures in August.

ACS/Thiess/MACA: Generous Premium

Thiess is launching an agreed offer to acquire 100% of MACA Ltd (MLD AU) at AUD 1.025/share, in cash, cum dividend, a 28% premium, 2.8x EV/Fwd EBITDA. Minimum acceptance condition is 90%.
Thiess is gaining scale with the acquisition of MACA. I believe that in the future ACS/Hochtief/CIMIC will seek to acquire the whole of Thiess.
Gross spread (as of 29 July) is 2.43%, for a deal with high chances to complete. I would be long at this price.

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Jul 29

Daily Brief Event-Driven: Revised Rules on Short Selling Restriction in Korea: Effective 3Q This Year and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Revised Rules on Short Selling Restriction in Korea: Effective 3Q This Year
Shin-Etsu Chemical (4063 JP) Salutary Earnings, Conservative Forecasts, and Another Buyback
NIFTY Quiddity Leaderboard Sep 2022: Adani Total Gas Could Be a Positive Surprise
Hwa Hong (HWAH SP): MGO Unconditional
(Mostly) Asia M&A: July 2022 Roundup

Revised Rules on Short Selling Restriction in Korea: Effective 3Q This Year

If short-selling accounts for more than 30% of total daily trade volume, it will be newly designated as an overheated short-selling stock, resulting in a one-day short-selling ban.
If the stock price falls by more than 5% on the day of the short-selling restriction, the restriction period is automatically extended by one more day.
We should pay attention to a possible increase in the trading volume of single-stock futures (SSF) due to short-selling bans, which can result in a more significant basis distortion.

Shin-Etsu Chemical (4063 JP) Salutary Earnings, Conservative Forecasts, and Another Buyback

Shin Etsu Chemical (4063 JP) reported Q1 earnings after the close on 27 July, and they blew the lights out. Higher margins and 10-year record high Q1 progression ratios.
The company also announced guidance which was pretty healthy, but progression ratios suggest it is conservative.
The company announced its second ¥100bn buyback in three months. This one lasts 6 months so impact will be lower, but it will have some impact.

NIFTY Quiddity Leaderboard Sep 2022: Adani Total Gas Could Be a Positive Surprise

The six-month reference period for NIFTY September 2022 Rebalance ends tomorrow.
In this insight, we take a look at the names that could become ADDs/DELs for the NIFTY 50, 100, and 500 Indices in the September 2022 Rebalance.
In addition, I have discussed some trading opportunities with interesting potential index flow dynamics.

Hwa Hong (HWAH SP): MGO Unconditional

Sanjuro, the consortium behind Hwa Hong Corp (HWAH SP) proposal, now controls 51.29%. The Offer has turned unconditional in all respects. Ong directors previously holding out, will now tender.
The Offer will still close on the 1 August – it will not be extended.
Should Sanjuro fail to acquire less than 90% of disinterested shares, Hwa Hong will continue to remain listed.

(Mostly) Asia M&A: July 2022 Roundup

For the month of July, only 4 new deals (firm and non-binding) were discussed on Smartkarma with an overall announced deal size of just ~US$1bn.
The average premium for the new deals announced (or first discussed) in July was ~42%, and a year-to-date average of 38%.
This compares to the average premium for all deals in 2021 (165 deals), 2020 (158 deals), and 2019 (145 deals) of 33%, 31%, and 31.5% respectively.

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Jul 28

Daily Brief Event-Driven: TOPIX July Rebalance: Good Performance and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

TOPIX July Rebalance: Good Performance, Low Progression, Should Trade Right Way
Yancoal Australia Placement – Cleanup Sale by Glencore Now the Ball Is in Yankuang Court
TOPIX July Rebalance: Flows at the Close Today
Detailing Why LG Energy’s MSCI Index Up-Weight Is November, Not August
JPX-Nikkei 400 2022 Rebal: Final Pre-Event Phase Strategy Worked. What Next?
VNET Draws the Interest of MBK Partners
SK Telecom: MSCI Deletion Should Provide Entry Point Vs KT Corp
Australian Unity Office: Crushed as Aliro Walks, But Actively Seeking Situations
MACA: Thiess’s Friendly Cash Offer

TOPIX July Rebalance: Good Performance, Low Progression, Should Trade Right Way

The TOPIX Free-Float Rebalance for July will be executed tomorrow at the close.
There should be about US$3.5bn to trade one-way with 150+ names down-weighted, 36 names up-weighted, and one inclusion – Mercari Inc (4385 JP).
The trade has performed well so far, and excess volume appears limited in most cases. It appears uncrowded.

Yancoal Australia Placement – Cleanup Sale by Glencore Now the Ball Is in Yankuang Court

By Clarence Chu

Glencore is looking to raise US$293m (A$422m) from selling its stake in Yancoal Australia (YAL AU). This would be a clean up sale.
Glencore has been sitting on its stake for a while now, and the two have a JV in the Hunter Valley Operations, the latter which commenced in Jul 2017.
The deal, while a large one to process at 135.6 days of three month ADV, represents just 5.6% of Yancoal Australia’s current mcap.

TOPIX July Rebalance: Flows at the Close Today

FFW changes and Mercari Inc (4385 JP)‘s inclusion in the TOPIX will lead to a one-way turnover of 0.55% and one-way trade of JPY 443bn (US$3.23bn) at the close today.
There is net buying in Consumer Discretionary, Financials and Communication Services stocks, while there will be net selling in Consumer Staples and Health Care stocks.
The upweights have outperformed the downweights since announcement of the changes and there has not been a lot of excess volume traded in the last couple of weeks.

Detailing Why LG Energy’s MSCI Index Up-Weight Is November, Not August

Expectations are spreading in the market that the free-float rate of LG Energy will increase from 9% to 15% at the MSCI August QIR. However, this possibility is quite low.
Only 1.57% will be reflected in this QIR, and 4.26% will be in November. So, the August IR will see 0.59x ADTV, and the November IR will welcome 2.93x ADTV.
A conservative approach is still valid for flow trading on LG Energy for now, and a more aggressive approach is needed with long/short trading with LG Chem.

JPX-Nikkei 400 2022 Rebal: Final Pre-Event Phase Strategy Worked. What Next?

In JPX-Nikkei 400 2022 Rebal: Final Predictions, I discussed Quiddity’s final predictions for Potential ADDs/DELs for the JPX-Nikkei Index August 2022 Annual Review.
In that insight, I classified the potential ADDs/DELs by conviction levels and discussed why the high conviction ADDs and DELs deserved a higher weight than the other baskets.
Since then, the LONG High Conviction ADDs – SHORT High conviction DELs Trade has outperformed the other LONG-SHORT combinations.

VNET Draws the Interest of MBK Partners

Bloomberg reported that MBK Partners is in talks to team up with a partner on a joint offer for 21Vianet Group (VNET US). Considerations are at a preliminary stage.
A potential bid would compete against The Hina Group and Industrial Bank’s $8.00 per ADS offer. The Board has not provided an update on its stance on this offer.
Takeover interest is unsurprisingly due to VNET’s depressed share price, unchanged FY22 guidance and ongoing data centre M&A activity.

SK Telecom: MSCI Deletion Should Provide Entry Point Vs KT Corp

SK Telecom (017670 KS) has continued to underperform KT Corp (030200 KS) even as foreign investors continue buying. Local institutions have been selling the stock.
With foreign room currently at 1.68% and consistently below 3.75% recently, SK Telecom (017670 KS) should be deleted from the MSCI Korea Index at the August QIR.
There will be more selling from FTSE trackers in September. With the SK Tel/KT Corp price ratio trading at the lows, the passive selling could provide a good entry point.

Australian Unity Office: Crushed as Aliro Walks, But Actively Seeking Situations

Australian Unity Office Fund (AOF AU) was the subject of six successive bids by Starwood between 2018-2020 and a bid by Charter Hall (CHC AU) and Abacus Property (ABP AU).
Large AOF shareholder Hume knocked back the ABP/CHC bid and Starwood never got to the final stages. But Aliro Group’s (CEO is ex-CHC) bid at A$2.45 got Hume’s support.
Then on 25 July, Aliro walked. And the shares fell. From A$2.21 to A$1.80. Ouch.

MACA: Thiess’s Friendly Cash Offer

MACA Ltd (MLD AU) recently announced a friendly off-market cash offer from fellow contractor Thiess, at A$1.025/share, a 28.1% premium to previous close.
The Offer is subject to limited conditions, including FIRB , ACCC sign-off, no prescribed occurrences, no issue of convertible securities, derivatives, or other rights, and 90% minimum acceptances.
The Offer has unanimous support from MACA’s board. Applications to FIRB and the ACCC have already been submitted. The announcement suggests MACA remains open to alternative approaches.

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Jul 27

Daily Brief Event-Driven: Alibaba to Pursue Dual Primary Listing in HK – Impact on Stock Connect and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Alibaba to Pursue Dual Primary Listing in HK – Impact on Stock Connect, Indices, Etc
Hong Kong CEO & Director Dealings – 26th July 2022
Chinese GDRs on the SIX Exchange – More Names, Smaller Discounts, Smaller Size, Less Liquidity
MACA’s Recommended $1.025 Per Share Takeover Offer from Thiess
More End of Lock-Up Shares (ESOP) For Kakao Bank, Krafton, and Lotte Rental in August
Explaining ESOP Margin Call Situation for Kakao Bank & Krafton
S&P BSE Quiddity Leaderboard Dec 2022: Some More Interesting LONG-SHORT Pairs
Dufry/Autogrill: Another Attempt to Create a Travel-Concession Giant

Alibaba to Pursue Dual Primary Listing in HK – Impact on Stock Connect, Indices, Etc

This morning – 26 July – Alibaba (ADR) (BABA US) / Alibaba Group (9988 HK) issued an announcement it would pursue a primary listing on the HKEX.
When Alibaba listed in NY, it was on ADRs. When it listed in HK, it was the shares underlying the ADRs but it was a quickie secondary listing.
It will now seek a dual primary listing as others have. This will make BABA Southbound-eligible and will slightly improve BABA’s HSI funding trade prospects in future.

Hong Kong CEO & Director Dealings – 26th July 2022

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 also flags those companies where shares have been pledged, both recently and ongoing.

Chinese GDRs on the SIX Exchange – More Names, Smaller Discounts, Smaller Size, Less Liquidity

China started mulling an expansion of its Stock Connect relationships in late 2021 with plans to allow GDR issuance in Switzerland and eventually Germany.
New GDR issuance rules came into effect in February and companies started planning to issue GDRs in Switzerland in March.
The new SIX Listing Rules went into effect 25 July. Two companies priced GDRs on 22 July and two more yesterday. US$1.5bn so far. There are 6 more near-term.

MACA’s Recommended $1.025 Per Share Takeover Offer from Thiess

MACA Ltd (MLD AU) has recommended a A$1.025 per share offer from Thiess. The offer price represents a 28.1% premium to the unaffected price of A$0.80 (on 25 July).
The offer is conditional on a 90% minimum acceptance condition and regulatory approvals (FIRB and ACCC). The target statement will be released in late August.
We think that the offer is reasonable in the context of historical share prices and multiples. At the last close, the gross spread is 3.5%.

More End of Lock-Up Shares (ESOP) For Kakao Bank, Krafton, and Lotte Rental in August

In August, there will be material ESOP related shares of Kakao Bank, Krafton, and Lotte Rental shares that could be released (one year after their IPOs).
The potential sale of more ESOP shares could further negatively impact their share prices. In addition, they face significant competition and their near term financial outlook is less clear.
Although their valuation multiples have declined materially in the past year due to declining share prices, their valuation levels are still not overly attractive.

Explaining ESOP Margin Call Situation for Kakao Bank & Krafton

Many employees of both companies must have participated in the ESOP subscription with stock-backed loans.
At the last close, the Kakao Bank ESOP must pay 14.34% of the initial total investment as additional withholdings. Krafton is much worse at 30.25%.
It seems highly likely that this situation will lead to a short-term flow distortion, substantial enough for us to consider setting up a position aimed at this.

S&P BSE Quiddity Leaderboard Dec 2022: Some More Interesting LONG-SHORT Pairs

In this insight, we take a look at the names leading the race to become ADDs/DELs for the BSE SENSEX, 100, 200, and 500 Indices in the December 2022 Rebalance.
SENSEX and BSE 100 could both see one index change each. There could be multiple ADDs/DELs for the BSE 200 and BSE 500 indices.
There are several trading opportunities with interesting potential index flow dynamics.

Dufry/Autogrill: Another Attempt to Create a Travel-Concession Giant

Dufry and Autogrill agree an all-stock deal (0.158 DUFN SW x 1 AGL IM) to create a travel-related concession giant. The Benettons will become the largest shareholders (c.25%).
The deal should bolster Dufry’s balance sheet and add scale, helpful in tenders. Shareholders of Autogrill seem to be the main beneficiaries of the deal.
As per the terms, spread on all-share is 14% premium, while that on cash alternative is 0.2% premium. Only a recovery of Dufry’s share price would justify opening a position.

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Jul 26

Daily Brief Event-Driven: Large Potential S-REIT Flows in the Next Two Weeks and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Large Potential S-REIT Flows in the Next Two Weeks
Alibaba (9988 HK): Dual Primary Listing Implications
IDX30/LQ45 Index Rebalance: Big Inflows on ARTO, BBRI, BBCA; Outflows on GOTO, TLKM, BMRI
Genex: Atlassian’s Farquhar Makes An Offer
Thai Life Insurance (TLI): Borderline SET50 Fast Entry
Genex’s Offer of A$0.23 from Skip Capital Likely Won’t Cut It
Hwa Hong Confirms No Competing Offers
PKN Orlen/Lotos: Attractive Spread
STOXX Europe Quiddity Leaderboard Sep 2022 (2.0): Ultra Electronics, Bavarian Nordic, Uniper, & More

Large Potential S-REIT Flows in the Next Two Weeks

Given recent corporate events in S-REIT land, there could be some considerable money to be allocated to the sector near-term
These flows come at a time when prices are down off highs and liquidity is low.
There could be some price impact on certain types of S-REITs near-term.

Alibaba (9988 HK): Dual Primary Listing Implications

Alibaba Group (9988 HK) currently has a Secondary Listing in Hong Kong and is looking to become dual primary listed in Hong Kong and the U.S.
The main change will be inclusion in the Southbound Stock Connect program where mainland investors will be able to buy the stock.
Alibaba Group (9988 HK) is capped at 8% in the HSCEI INDEX and is close to 8% of the HSI INDEX, there will be negligible impact on the dividend futures.

IDX30/LQ45 Index Rebalance: Big Inflows on ARTO, BBRI, BBCA; Outflows on GOTO, TLKM, BMRI

There are 3 changes each for the IDX30 Index and LQ45 Index and 11 changes for the IDX80 Index at the upcoming rebalance to be implemented on 29 July.
There is passive inflow on Bank Jago Tbk PT (ARTO) due to index inclusion, and on Bank Rakyat Indonesia (BBRI) and Bank Central Asia (BBCA) due to capping changes.
With only 4 days to implementation, there will be relatively big moves on stocks that have large flow/impact from passive fund trading.

Genex: Atlassian’s Farquhar Makes An Offer

Renewable energy play Genex Power Ltd (GNX AU) has announced a non-binding indicative proposal from Atlassian’s Scott Farquhar and Stonepeak, by way of a Scheme, at A$0.23/share.
That’s around a 64% premium. Farquhar holds a 19.9% stake.
Farquhar, along with Atlassian co-founder Mike Cannon-Brookes, backed Genex capital raising in March last year.

Thai Life Insurance (TLI): Borderline SET50 Fast Entry

Thai Life Insurance (TLI TB) raised over US$1bn in its IPO and has started trading on the SET today.
At the last trade price of THB 16/share, Thai Life Insurance (TLI TB) is a borderline Fast Entry add to the Stock Exchange of Thailand SET 50 Index (SET50 INDEX).
If Thai Life Insurance (TLI TB) is added to the index, Bangkok Life Assurance (BLA TB) is the most likely deletion.

Genex’s Offer of A$0.23 from Skip Capital Likely Won’t Cut It

Genex Power Ltd (GNX AU) shares rose 44% on the back of an A$0.23 per share offer from Skip Capital and Stonepeak. Skip also increased its stake to 19.99%.
At first glance, the offer looks generous in comparison to peer multiples and recent share prices. However, the offer is opportunistic partly due to Genex’s 500MW pipeline of projects.
Benchmarking the precedent transaction multiples suggests that Genex’s existing portfolio is worth at least A$0.27 per share. The Board should engage for a higher price.

Hwa Hong Confirms No Competing Offers

The Ong directors tried every trick in the book to derail the Hwa Hong Corp (HWAH SP) offer. The trump card was hiring Evercore to attract competing offers by 25 July.
The Board confirmed today that there are no competing offers. This is a catalyst for shareholders sitting on the fence to accept the S$0.40 per share offer.
The offer closes on 1 August. While meeting the 50%+ minimum acceptance condition will be a close-run, we think it will be met. The gross spread is 5.3%.

PKN Orlen/Lotos: Attractive Spread

Shareholders of Polish refiner PKN Orlen approved the proposed takeover of smaller rival Grupa Lotos, bringing Poland closer to creating a national champion better able to compete against global players.
This takeover has been planned for a long time and could not proceed until the EU gave the green light with a long list of remedies.
Gross spread (as of 22 July) is 5.63%. Shares of Lotos will cease trading next week. Long 1 LTS PW/short 1.075 PKN PW.

STOXX Europe Quiddity Leaderboard Sep 2022 (2.0): Ultra Electronics, Bavarian Nordic, Uniper, & More

In this insight, we take a look at the names leading the race to become ADDs/DELs for the STOXX Europe 600 and EURO STOXX Indices for the September 2022 Rebalance.
Based on current rankings, there could be around 8 ADDs/DELs in the September 2022 Rebalance.
Furthermore, Ultra Electronics Holdings (ULE LN) could get deleted at the end of this week triggering an intra-review addition to the STOXX Europe 600 Index.

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Jul 25

Daily Brief Event-Driven: S&P/ASX Index Rebalance Preview: Busy Rebalance With Lots of Changes Expected and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

S&P/ASX Index Rebalance Preview: Busy Rebalance With Lots of Changes Expected
MSCI August 2022 Index Rebalance Preview: The Last QIR!
Merged Lotte Confectionery: Nearly Guaranteed Early Bird for KOSPI 200 Inclusion
Merger Arb Mondays (25 Jul) – DTAC/True, Ramsay Health, Link Admin, VNET, Alliance Aviation
Amorepacific Stub: Reversion Trading on Current Diversion Ahead of 2Q Earnings Release
Clear Road for Kinetic/Globalvia Consortium

S&P/ASX Index Rebalance Preview: Busy Rebalance With Lots of Changes Expected

At the September rebalance, we expect changes to the S&P/ASX 100 Index, S&P/ASX 200 (AS51 INDEX) and S&P/ASX 300 Index. Announcement is on 2 September with implementation on 16 September.
Potential adds/deletes with large flow and impact include Shopping Cntrs Austrls (SCP AU), Sayona Mining (SYA AU), Charter Hall Social Infrastructure REIT (CQE AU) and Capricorn Metals (CMM AU).
Shorts have increased significantly on a few stocks over the last few weeks, indicating that there could be some pre-positioning on these stocks.

MSCI August 2022 Index Rebalance Preview: The Last QIR!

We have completed days 1-5 in the review period for the MSCI August QIR. This is the last review that will use the current QIR methodology.
Most changes are expected in China with the largest inflows on Gcl Poly Energy Holdings Limited (3800 HK), Tianqi Lithium (002466 CH) and Qinghai Salt Lake Industry (000792 CH).
There are a few stocks that will have same way flows from the FTSE All-World and All-Cap trackers at the September SAIR.

Merged Lotte Confectionery: Nearly Guaranteed Early Bird for KOSPI 200 Inclusion

Lotte Confectionery’s screening period for the upcoming rebalancing will be July 20 to October 31, with an increased number of listed shares resulting from the merger.
To fail inclusion, it must fall below Hyundai Greenfood. There is a market cap gap of ₩300B, suggesting the possibility of inclusion in December is quite high.
Lotte Confectionery may benefit from concentrated flow from an early stage, given that the outline of inclusion/exclusion candidates for the upcoming rebalancing is still relatively vague.

Merger Arb Mondays (25 Jul) – DTAC/True, Ramsay Health, Link Admin, VNET, Alliance Aviation

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.
The highest spreads are 21Vianet Group (VNET US), Alliance Aviation Services (AQZ AU), Ramsay Health Care (RHC AU), Resapp Health (RAP AU), Yashili International Holdings (1230 HK), True Corp.
Lowest gross spreads are Excelpoint Technology (EXLP SP), Giordano International (709 HK), Frasers Hospitality Trust (FHT SP), MyDeal.com.au Ltd (MYD AU), Dongzheng Automotive Finance (2718 HK), Cocoaland Holdings (COLA MK).

Amorepacific Stub: Reversion Trading on Current Diversion Ahead of 2Q Earnings Release

At last Friday’s close, the Amorepacific Group (002790 KS) stub deserves our attention as it is in a diversion at a -1.58σ on a 20D moving average.
Recent valuation trends and institutional flows also do not show anything unusual. So the current diversion between them should be seen as a temporary distortion.
Amorepacific reacts more sensitively than AmoreG in the event of a lower-than-expected result on the 2Q earnings release. So now may be the right entry time to target reversion trading.

Clear Road for Kinetic/Globalvia Consortium