Event-Driven

The price review period for the FTSE All-World/All-Cap September 2022 SAIR ended on 30 June. The changes are expected to be announced on 19 August and implemented on 16 September.
For Asia ex-Japan ex-China, we see 7 inclusions to All-World, 58 inclusions to All-Cap, 9 migrations from All-Cap to All-World, 5 migrations from All-World to All-Cap, and 20 deletions.
There are quite a few names in Australia that could have same way flows from the S&P/ASX 200 and S&P/ASX 300 Index trackers on the same day as the FTSE trackers.

JAPAN PASSIVE – The GPIF in FY2021

The GPIF reported its annual investment results for the FY to March 2022 last Friday. The investment report makes for interesting reading.
The GPIF made 5.42% but alpha was negative 6bp vs time-weighted and money-weighted benchmarks.
The re-allocations amongst asset classes now means more money tracks TOPIX, and it means active managers have their work cut out for them going forward.

Critical Flaws in the MSCI Methodology for SK Telecom’s Foreign Room Calculation

MSCI does not have any explicitly-defined foreign room calculation method for Korean FOL stocks with DRs.
58M shares can still be converted into ADRs, close to 27% of SO. There are still ample foreign rooms for SKT, making its situation quite different from KT’s in 2019.
MSCI, which places the most importance on actual investability, won’t delete SKT, which has a substantial real-world foreign room simply because the nominal value has fallen below the threshold.

Link Admin Rejects Dye & Durham’s Revised Offer

Citing the Australian Competition and Consumer Commission’s concerns and challenging markets, Dye & Durham (D&D) reduced its Offer price for Link Administration (LNK AU) to $4.30/share, down from $5.50/share.
Link has now announced it “does not believe it is able to recommend” the revised Offer.
That tentative rejection, and the fact it remains in discussion with D&D, suggest a board-backed price is probably somewhere between the original bid price and the reduced Offer terms.

Tassal Group (TGR AU): Cooke Scales Up

Back on the 28 June, Tasmanian salmon producer Tassal (TGR AU) rejected Cooke Inc’s $4.85/share offer – its third proposal – and a 42.2% premium to the undisturbed price.
At the time, Cooke had amassed a 5.4% position. They have now increased that stake to 7.599%, paying up to A$4.85/share.
A material shareholding and FIRB already in the bag – Cooke is playing for keeps. But it probably needs to bump the terms to get this transaction over the line.

Link’s Statement Hints at a Willingness to Meet in the Middle

The Link Administration (LNK AU) Board will not recommend Dye & Durham/DND’s proposed lower offer of A$4.30 per share due to shareholder feedback, the underlying value and alternative options.
The statement suggests that the Board is willing to consider a lower but improved offer. Acquiring Link at a lower valuation through its attractive financing package continues to motivate DND.
A price of A$4.70, which is the middle of the buyer’s and seller’s valuations will get a deal done. Downside risk is low as shares trade close to low-end valuation.

PipeDo Holdings (3919) MBO – Advantest Again, This Time It’s a Stitch-Up

Last autumn, Advantage Partners launched an MBO on Pipedo HD Inc (3919 JP) where an activist/y presence threatened to be able to block it. Partway through, shares popped.
The MBO was unsuccessful. Now they are back, at the same price, and now they have arranged a side deal with the activist-y holder. So now it is stitched up.
There could easily be people unhappy with the structure of this deal, especially as book value is up 16%, and projected cashflows 8-10% higher than last time.

An Early Look at Potential Deletions and Additions to KOSPI200

By Douglas Kim

In this insight, we provide an early look at the potential deletions and additions to KOSPI200 rebalance.
We provide the top 10 potential deletions including Cosmax Inc (192820 KS), Hyundai Home Shopping Network (057050 KS), and Samyang Holdings (000070 KS) to KOSPI200 (announcement in November 2022).
Our trading strategy for the KOSPI200 index would be to go short on a basket of the potential deletions and to go long on a basket of the potential additions.

Kasikornbank (KBANK TB): Potential MSCI Inclusion

Kasikornbank PCL (KBANK-R TB) was deleted from the MSCI Thailand Index in June 2021 following the issuance of NVDR’s approaching its permitted limit of 25% of issued shares.
With 12 months since deletion complete and meeting market cap, liquidity and foreign room thresholds, Kasikornbank PCL (KBANK TB) could be added to the MSCI Thailand Index in August.
If added to the MSCI Thailand Index, we estimate passive trackers will need to buy 47.39m shares (US$199m; 3.9 days of ADV) of Kasikornbank PCL (KBANK TB) on 31 August.

Teniralc/Cary Group: Agreed Opportunistic Cash Offer

CVC and Nordic Capital announced an agreed takeover offer for the 70% they don’t own in Cary Group. The SEK 65/share offer price represents 14.8x EV/Fwd EBITDA and 25.6x Fwd P/E.
The shares had dropped 60% YTD. Cary’s tenure in the stock market will be short-lived (listed 09/2021). It’s a difficult target for activists, the top ten shareholders own c.84%.
It’s difficult to reject a 60% premium; I believe folks should be happy to cut losses. Gross spread is 1.85% (12.7% estimated annual return assuming settlement on 30 August). Long.

Before it’s here, it’s on Smartkarma

Jul 04

Event-Driven: Gcl Poly Energy Holdings Limited, Seven & I Holdings, Link Administration, SK IE Technology, Australian Unity Office Fund, Tassal and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

FTSE All-World/All-Cap Index Rebalance Preview: Some Big Changes in China
Seven & I Sale of Sogo Seibu Moves Closer
Merger Arb Mondays (04 Jul) – Link Admin, Ramsay, DTAC/True, Australian Unity Office Fund, Yashili
WISE Theme Indexes (TIGER ETFs): Rebalancing Flow Estimations
AOF Trading at the Dividend-Adjusted Unaffected Price
Tassal: Cooke Remains a Determined Suitor

FTSE All-World/All-Cap Index Rebalance Preview: Some Big Changes in China

The price review period for the FTSE All-World/All-Cap September 2022 SAIR ended on 30 June. The changes are expected to be announced on 19 August and implemented on 19 September.
There are a lot of potential inclusions to the indices for China -some changes are a result of stocks being included in Northbound Stock Connect.
Gcl Poly Energy Holdings Limited (3800 HK) is the largest potential inclusion (in terms of passive flow) in the index following resumption of trading in November 2021.

Seven & I Sale of Sogo Seibu Moves Closer

By Michael Causton

Initial reports suggest that Fortress Investment, part of the Softbank group of funds, is now the frontrunner in negotiations to acquire Sogo Seibu department stores from Seven & I.
Reports suggest Fortress is already in discussions with privately owned retailer Yodobashi Camera to take over management of the chain’s better stores, beginning with Seibu Ikebukuro.
The loss of ¥500 billion or so in turnover won’t be missed not will the ¥8.8 billion losses but activist investors won’t stop there.

Merger Arb Mondays (04 Jul) – Link Admin, Ramsay, DTAC/True, Australian Unity Office Fund, Yashili

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 Sezzle Inc (SZL AU), Link Administration (LNK AU), 21Vianet Group (VNET US), Alliance Aviation Services (AQZ AU), Ramsay Health Care (RHC AU), Australian Unity Office Fund.
The lowest gross spreads are Hwa Hong Corp (HWAH SP), Irongate Group (IAP AU), Giordano International (709 HK), Uniti Group Ltd (UWL AU), Excelpoint Technology (EXLP SP).

WISE Theme Indexes (TIGER ETFs): Rebalancing Flow Estimations

Among the local theme indexes in Korea, we have three noteworthy ones for July. They are the WISE theme indexes. They will all rebalance on July 15.
Due to some constituents’ recent significant price movements, we can now expect some notable passive flows.
These names are worthy of our attention: SKIET, Solus Advanced, Kangwon Land, Hanatour, T’way Air, Yong Pyong Resort, HYBE, CJ ENM, and Studio Dragon.

AOF Trading at the Dividend-Adjusted Unaffected Price

Australian Unity Office Fund (AOF AU) has extended Aliro’s exclusive due diligence to 15 July. Shares slid 1.8% on concerns of Aliro lowering the offer or walking away.
Encouragingly, Aliro confirmed its intention to pursue the proposal at a price not lower than the offer price and will return with an updated proposal within two weeks.
The offer price (including Sep distribution) of A$2.465 is 14.7% above the last close. The downside is low as the shares are trading in line with the dividend-adjusted unaffected price.

Tassal: Cooke Remains a Determined Suitor

On 1 July, Cooke, the spurned suitor, disclosed that it further increased its stake from 5.40% to 7.60% at an average price of A$4.59 per share.
The Tassal (TGR AU) Board decided not to engage with Cooke as its third offer of A$4.85 per share did not reflect the fundamental value of the business.
Cooke’s recent actions suggest that it will not be easily deterred. We think that it is likely that Cooke returns with another offer which will force the Board to engage.

Before it’s here, it’s on Smartkarma

Jul 03

Event-Driven: Gcl Poly Energy Holdings Limited, Tencent, Toshiba Corp and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Index Rebalance & ETF Flow Recap: FTSE JP, HSTECH, HSCEI, PCOMP, GCL Tech, Tencent, Tianqi Lithium
Last Week in Event SPACE: Prosus/Naspers, Link Admin, Bank of Kyoto, Tassel, Toshiba
Asia-Pac Weekly Risk Arb Wrap: Tassal, Toshiba, Link Admin, Link Net

Index Rebalance & ETF Flow Recap: FTSE JP, HSTECH, HSCEI, PCOMP, GCL Tech, Tencent, Tianqi Lithium

30 June was the review cutoff date for the next rebalance of the FTSE All-World/All-Cap Index, HSI INDEX, HSCEI INDEX, HSTECH INDEX, HSCI Index, PCOMP INDEX and the LQ-45 Index.
Bilibili (9626 HK) replaces Sunac China Holdings (1918 HK) in the Hang Seng China Enterprises Index (HSCEI INDEX) at the close of trading on 8 July.
There were big inflows to iShares MSCI China (ETF) (MCHI US) during the week while the largest outflow was from the Tracker Fund of Hong Kong Ltd (2800 HK).

Last Week in Event SPACE: Prosus/Naspers, Link Admin, Bank of Kyoto, Tassel, Toshiba

Prosus (PRX NA) selling its JD.com (9618 HK) shares was expected. The beginning of an open-ended share repurchase programme of Prosus and Naspers (NPN SJ) shares was a welcome surprise.
Dye & Durham has reduced its Offer price for Link Administration (LNK AU) to $4.30/share, down from $5.50/share. It still may get board support.
A 40-45% discount is about the narrowest Bank of Kyoto (8369 JP) should get to. For that, there is probably 15-20% upside. But like all holdco trades, trade the range.

Asia-Pac Weekly Risk Arb Wrap: Tassal, Toshiba, Link Admin, Link Net

There are 46 – mostly firm – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
One new deals this week: Cooke’s rejected Offer for Tasmanian salmon producer Tassal (TGR AU)
Key updates took place for: Link Administration (LNK AU), Link Net (LINK IJ), and Toshiba Corp (6502 JP)

Before it’s here, it’s on Smartkarma

Jul 02

Event-Driven: Kirin Holdings, Geely Auto, Hongfa Technology Co Ltd A and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Kirin Sells The Myanmar JV to MEHL: Not a Fair Valuation But Getting At Least Some Money Is a Bonus
Shanghai/Shenzhen Southbound Connect: Weekly Moves (30 June 2022)
Shanghai/Shenzhen Northbound Connect: Weekly Moves (24 June 2022)

Kirin Sells The Myanmar JV to MEHL: Not a Fair Valuation But Getting At Least Some Money Is a Bonus

By Oshadhi Kumarasiri

Kirin Holdings (2503 JP) announced yesterday that it will transfer its stake in the Myanmar business (51% of share capital) to its JV partner MEHL, via a share buyback of ¥22.4bn.
Having disposed most of the other underperforming assets during 2018-21, the Myanmar business was the main issue holding back Kirin’s share price performance.
With the Myanmar issue resolved better than anticipated, it seems like the right time for Kirin to get a move on.

Shanghai/Shenzhen Southbound Connect: Weekly Moves (30 June 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, net inflow over the past week was ~US$1.5bn, split US$0.4bn for Shanghai and US$1.2bn for Shenzhen.
He largest inflows were into Geely Auto (175 HK), Li Auto (2015 HK), and HKEX (388 HK). The largest outflow was in China Mobile (941 HK) and CCB (939 HK).

Shanghai/Shenzhen Northbound Connect: Weekly Moves (24 June 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 inflow over the past week was ~US$3.9bn, split between Shanghai (+US$2.2bn) and Shenzhen (+US$1.7bn).
The largest inflows were into Kweichow Moutai (600519 CH) and Hongfa Technology (600885 CH). The largest outflows were in Zijin Mining (601899 CH)and Zhejiang Sanhua Intellignt Controls (002050 CH).

Before it’s here, it’s on Smartkarma

Jul 01

Event-Driven: Tianqi Lithium, Shinko Electric Industries, LG Corp, LG Energy Solution, Hang Seng China Enterprises Index, Meggitt PLC, Grupo Financiero Banorte and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Tianqi Lithium (9696 HK): Big Discount to A-Shares & Index Inclusion Timeline
JPX-Nikkei 400 2022 Rebal: Final Predictions
StubWorld: LG Corp In Unwind Territory
End of Mandatory Lock-Up Periods for 40 Companies in Korea in July 2022
HSCEI Index Rebalance: Bilibili Replaces Sunac Next Week
Parker-Hannifin/Meggitt: Ready to Fly
CitiBanamex – Potential Bidders Get Serious, We Stay Cautious on Banorte

Tianqi Lithium (9696 HK): Big Discount to A-Shares & Index Inclusion Timeline

Tianqi Lithium (9696 HK) is looking to sell up to 188.74m shares to raise up to US$1.97bn. Pricing at HK$69-82/share is a 52-43% discount to Tianqi Lithium (002466 CH).
Between 32-38% of the total offer size is being taken by 7 cornerstone investors and they are locked in for 6 months from listing date (expected 13 July).
Tianqi Lithium (9696 HK) could be added to MSCI China in November, FTSE All-World and FTSE China 50 in December. Southbound Stock Connect could come online soon after listing.

JPX-Nikkei 400 2022 Rebal: Final Predictions

By Janaghan Jeyakumar, CFA

JPX-Nikkei 400 is composed of stocks listed on the Tokyo Stock Exchange selected based on multiple metrics relating to size, liquidity, financial performance, and corporate governance.
The annual rebalance of the JPX-Nikkei 400 Index takes place in August every year and the cut-off date for the data used for this rebalance is the end of June.
In this insight, we take a look at Quiddity’s final predictions for Potential ADDs/DELs for the August 2022 review.

StubWorld: LG Corp In Unwind Territory

A double dose of StubWorld this week, as LG Corp (003550 KS)‘s NAV discount narrowing looks to have run its course.
Preceding my comments on LG Copr 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%.

End of Mandatory Lock-Up Periods for 40 Companies in Korea in July 2022

By Douglas Kim

We discuss end of the mandatory lock-up periods for 40 stocks in Korea in July 2022, among which 7 are in KOSPI and 33 are in KOSDAQ.
These 40 stocks on average could be subject to further selling pressures in July and could underperform relative to the market.
Among these 40 stocks, LG Energy Solution (373220 KS) and Heung A Shipping (003280 KS) could face further selling pressures in the coming weeks.

HSCEI Index Rebalance: Bilibili Replaces Sunac Next Week

Bilibili (9626 HK) will replace Sunac China Holdings (1918 HK) in the Hang Seng China Enterprises Index (HSCEI INDEX) at the close of trading on 8 July.
While Bilibili (9626 HK)‘s index inclusion is a surprise, the impact from passive fund trading is not a lot. Nothing much one can do on Sunac China Holdings (1918 HK).
The Hang Seng China Enterprises Index (HSCEI INDEX) will drop 16.12 points at the close on 8 July. Something for traders to watch out for over the next week.

Parker-Hannifin/Meggitt: Ready to Fly

UK Secretary of State has said Parker-Hannifin has addressed competition and national security concerns over its takeover of Meggitt PLC. Public consultation is pending, after which clearance is almost sure.
As in the case of Ultra Electronics, it would be hard to justify the UK blocking a defence deal from a company based in a key ally, in my view.
The market believes there will be a deal. As of 29 June, gross spread is 1.25%, estimated annual return (assuming settlement on 26 October) is 3.98%.

CitiBanamex – Potential Bidders Get Serious, We Stay Cautious on Banorte

By Victor Galliano

Banorte and Santander have both hired M&A advisors for a potential Citibanamex bid, according to Reuters; Banco Azteca is not participating in the bidding, whilst Inbursa is potentially still interested
In the event of a bid, we do not expect Santander to be aggressive on price; Banorte could be more aggressive, which would increase its chances of a winning bid
Were Banorte to acquire Citibanamex, we continue to believe that its prospective dividend could be at risk; in essence, the risks of M&A still outweigh the potential opportunities

Before it’s here, it’s on Smartkarma

Jun 30

Event-Driven: Toshiba Corp, Link Net, Ardent Leisure Group Ltd, Semirara Mining And Power Corp, Frasers Hospitality Trust, Boskalis Westminster and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Toshiba (6502) Ownership Structure – “Hostage to Toshiba” Larger Than Real World Float
Link Net: Home Straight For Axiata’s MTO
Toshiba – Headed For A Showdown
Ardent Leisure’s EGM Approves the Main Event Sale
PCOMP Index Rebalance Preview: SCC Likely Replaces SECB
(Mostly) Asia M&A: June 2022 Roundup
HAL Holding/Royal Boskalis Westminster: Offer Launch & Precedent of Orange/Orange Belgium

Toshiba (6502) Ownership Structure – “Hostage to Toshiba” Larger Than Real World Float

Every year, the yukashoken hokokusho shows a breakdown of share ownership by owner category. It only happens once a year for most companies.
It is a crucial input to knowing where the shares are and how people are positioned. It also shows who and how big is Real World Float.
This year’s data shows a surprisingly small change year-on-year for Foreign Active Ownership, which is the biggest category. A little musical chairs, but no chairs removed.

Link Net: Home Straight For Axiata’s MTO

Axiata Group (AXIATA MK) recently completed the acquisition of a 66.03% stake in Link Net (LINK IJ).
Axiata is now obligated to undertake a mandatory tender (MTO) offer to acquire the remaining 33.97% equity interest in Link Net. There are no conditions attached to the MTO.
The MTO is expected to be completed in the third quarter of 2022. The spread has narrowed, yet there is still some left.

Toshiba – Headed For A Showdown

By Mio Kato

Following the resignation of director Mariko Watahiki yesterday, the results for the shareholder votes are in for Toshiba.
Watahiki unsurprisingly had a low approval ratio of 65.87% but activist-linked directors also saw less than stellar approval ratios as did new CEO Taro Shimada.
Toshiba’s path forward looks increasingly murky and lofty valuations bid up on privatisation hopium look increasingly tenuous.

Ardent Leisure’s EGM Approves the Main Event Sale

Ardent Leisure Group Ltd (ALG AU)‘s shareholders have approved Dave & Buster’S Entertainment, Inc (PLAY US) acquisition of Main Event business. Ardent will receive A$670.3 million.
Shareholders will receive a total return of A$0.95 through capital return (A$0.46) and unfranked special dividends (A$0.49) on 13 July.
Precedent transactions and peer multiples suggest that the remaining business is worth A$0.23-0.30, implying a 16%-21% upside to the last close. The remaining business would be attractive to private equity.

PCOMP Index Rebalance Preview: SCC Likely Replaces SECB

Today is the last day of the review period for the August rebalance of the Philippines Stock Exchange PSEi Index (PCOMP INDEX).
We see a high probability of Semirara Mining And Power Corp (SCC PM) replacing Security Bank (SECB PM) in the index.
Historically, the adds have outperformed the deletes and there has been a pop/drop in the adds/deletes the day after announcement. There is one month to pre-position for the announcement.

(Mostly) Asia M&A: June 2022 Roundup

For the month of June, 12 new deals (firm and non-binding) were discussed on Smartkarma with an overall announced deal size of ~US$8bn.
The average premium for the new deals announced (or first discussed) in June was ~32%.
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.

HAL Holding/Royal Boskalis Westminster: Offer Launch & Precedent of Orange/Orange Belgium

The acceptance period runs until 2 September. HAL now controls 52.9% of Boskalis (Stichting Hyacinth will presumably keep buying at €32 or less). HAL will consolidate Boskalis from H2 2022.
The Boards of Boskalis have concluded that the offer price is not sufficiently convincing to recommend it to Boskalis’ shareholders. Good try, but twisting HAL’s arm seems difficult. Premium is 0.06%.
Considering the precedent of Orange/Orange Belgium, I would only open a position below the offer price. HAL will now consolidate Boskalis and does not need to sweeten the offer.

Before it’s here, it’s on Smartkarma

Jun 29

Event-Driven: Toshiba Corp, SenseTime Group, Bank of Kyoto, Tassal, Kepco Plant Service & Engineering, Prosus , HKEX, KB Financial, Tata Power, EMIS Group PLC and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Toshiba – These Are The Days Of Our Lives
HSTECH Index Rebalance Preview (Sep): Free Float & Capping Changes To Drive Flows
Bank of Kyoto – Trading the Holdco Range
Tassal And Cooke In Salmon Stand-Off
Two Nuclear ETFs Listed Today (KINDEX & HANARO): Passive Flow Outlook
StubWorld: Prosus & Naspers Gain On Buyback Funded By Tencent Share Sale
ETFs in Stock Connect: List Announced; Effective 4 July
KRX Banks Index (KODEX ETF): September Rebalancing Preview
NIFTY Quiddity Leaderboard Sep 2022: June Trades Successful; More to Come
UnitedHealth/EMIS: Agreed Offer, Estimated Calendar, Spread

Toshiba – These Are The Days Of Our Lives

By Mio Kato

At last year’s Toshiba AGM we had an elected director resign because the sitting chairman was rejected.
This year we have another director resigning because two other directors weren’t rejected.
Now all we are really waiting for in this drama is for Kurumatani’s hitherto unknown identical twin, separated at birth, to show up with a plot for revenge or something…

HSTECH Index Rebalance Preview (Sep): Free Float & Capping Changes To Drive Flows

We do not expect any inclusions or exclusions for the Hang Seng Tech Index (HSTECH INDEX) at the September rebalance.
Float and capping changes will lead to a one-way turnover of 6.5% and that will result in a one-way trade of HK$4,913m.
SenseTime Group (20 HK) will have the largest buying flow due a potential increase in free float. The stock is also a potential inclusion to the HSCEI INDEX in September.

Bank of Kyoto – Trading the Holdco Range

Bank of Kyoto has twice changed/improved its capital governance in the past six months.
Silchester International Investors wants it to do more, asking for a small special dividend at tomorrow’s AGM. I don’t think it will get it.
The holdco is now a better holdco trade than it was 6mos ago, and trading the range is the right way to look at it.

Tassal And Cooke In Salmon Stand-Off

Tasmanian salmon producer Tassal (TGR AU) has rejected Canadian aquaculture play Cooke Inc’s $4.85/share offer – its third proposal and a 42.2% premium to the undisturbed price.
Cooke commenced buying shares in Tassal around ten days ago and has built a 5.4% stake.
Tassal considers the Offer does not reflect the fundamental value of the business and has determined not to engage with Cooke.

Two Nuclear ETFs Listed Today (KINDEX & HANARO): Passive Flow Outlook

Nuclear power is a landmark policy that Korea’s current administration heavily pushes. In response, the local market has quickly launched nuclear thematic ETFs: KINDEX & HANARO, which got listed today.
Nuclear power is likely to become the next big thing, AUM-wise, similar to the secondary battery-themed ETFs under the former administration.
Since most of these nuclear stocks have significantly smaller market caps than those battery ones, the actual flow impact is likely to be more significant.

StubWorld: Prosus & Naspers Gain On Buyback Funded By Tencent Share Sale

It’s been a long-time coming. Prosus (PRX NA) and parent Naspers (NPN SJ) will gradually sell down their stake in Tencent (700 HK) to fund a share purchase program.
Preceding my comments on Prosus and Naspers, are the current setup/unwind tables for Asia-Pacific Holdcos.
These relationships trade with a minimum liquidity of US$1mn, and a % of market capitalisation greater than 20%.

ETFs in Stock Connect: List Announced; Effective 4 July

CSRC and SFC have approved the inclusion of eligible ETFs in Stock Connect and trading of the ETFs under Stock Connect would begin from 4 July.
There are 4 ETFs included in Southbound Stock Connect, while there are 83 ETFs that have been included in Northbound Stock Connect.
Under Stock Connect, only secondary trading is allowed in the ETFs with no creations or redemptions permitted. This will have implications for short-term and long-term repo on the HSI/HSCEI/HSTECH indices.

KRX Banks Index (KODEX ETF): September Rebalancing Preview

The index targets the GICS Financials/Banks sector stocks: 12 stocks belong to this sector. Then nine of these are currently included in the KRX Banks.
Compared to the last rebalancing, where we had Kakao Bank’s inclusion event, the impact size for the upcoming rebalancing will likely be significantly reduced.
The last rebalancing showed that the directional correlation between passive flow and price movement was high. So, we can still consider a Long/Short Day Trade even with this impact size.

NIFTY Quiddity Leaderboard Sep 2022: June Trades Successful; More to Come

By Janaghan Jeyakumar, CFA

In this insight, we take a look at the names leading the race to become ADDs/DELs for the NIFTY 50, 100, and 500 Indices for the September 2022 Rebalance.
With only one month left in the reference period, most changes for the NIFTY 50 and NIFTY 100 Index seem to be high-conviction index changes.
In addition, I have discussed some trading opportunities with interesting potential index flow dynamics.

UnitedHealth/EMIS: Agreed Offer, Estimated Calendar, Spread

Giant UnitedHealth offers 1,925p, in cash (implied equity value of £1,243 million, implied EV of £1,185 million). This represents: 6.5x EV/Fwd Revenue, 20.4x EV/Fwd EBITDA and 31.7x Fwd PE (source: I/B/E/S).
The offer is pitched above peer’s multiples, which coupled with a 49% premium, should be enough to convince any reluctant shareholder to tender.
Gross spread is 2.9%, quite good for a highly likely deal in the European space (c. 16% estimated annual return assuming settlement takes place on 8 September).

Before it’s here, it’s on Smartkarma

Jun 28

Event-Driven: Tencent, Prosus , NTT (Nippon Telegraph & Telephone), JMDC Inc, Link Administration, Samsung Kodex Banks ETF, Tassal, Life Insurance Corp of India (LIC) and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Prosus, Tencent, JD.com – Good Intentions but Questionable Timing
Prosus/Naspers – Operation Ouroboros Commences, And It’s Big (Discount, Flows, Index Impact)
Last Leg of TOPIX and JPNK400 FFW Rebal – ¥780bn One-Way Flow Wednesday
FTSE GEIS Sep 2022 Index Rebalance Preview: Japan
Link Admin: Dye & Durham’s Cuts Bid Price
A Guide to Thematic Equity ETFs in Korea for Uncrowded Flow Trading Opportunities
Link’s Lower Offer of A$4.30 from DND Fails to Excite
Tassal Is in the Crosshairs of a Suitor
Tencent (700 HK): Impact of Prosus Selling & Passive Inflows
S&P BSE Quiddity Leaderboard Dec 2022: LIC, Shriram Finance, Tata Motors, Dr Reddy’s, & More

Prosus, Tencent, JD.com – Good Intentions but Questionable Timing

By Sumeet Singh

Today Prosus announced that it will begin an open-ended share repurchase programme of Prosus and Naspers shares which will be funded by on-market sale of Tencent shares.
Prosus also announced that it has sold its entire shareholding in JD.com, to raise US$3.67bn, on-market in Jun 2022.
In this note, we talk about the implication and timing of today’s announcements.

Prosus/Naspers – Operation Ouroboros Commences, And It’s Big (Discount, Flows, Index Impact)

I wanted to write this insight over the weekend but could not finish it, but now there is new news to warrant it.
Today, Prosus (PRX NA) announced it had sold the 131,873,028 JD.com Inc. (9618 HK) shares it received in the Tencent (700 HK) distribution. This is as expected. Proceeds were US$3.67bn.
Also announced this morning is “the beginning of an open-ended share repurchase programme of Prosus and Naspers (NPN SJ) shares.” The details are the key to everything.

Last Leg of TOPIX and JPNK400 FFW Rebal – ¥780bn One-Way Flow Wednesday

The last of the three-leg rebalance for TOPIX and JPNK400 index weights takes place Wednesday 29 June at the close. This one is a bit larger than expected in April.
There were a large number of cancellations of shares by TSE Prime members in May which ups the predicted value to be traded.
Interestingly, because lots of names have seen share cancellations and FFW drops, the average passive ownership of TSE Float (not other providers’ float) has gone up significantly through this process.

FTSE GEIS Sep 2022 Index Rebalance Preview: Japan

The FTSE Russell September 2022 SAIR will use closing prices from 30 June to calculate the market cap cut-offs to determine the inclusions and exclusions for the All-World/All-Cap indices.
We see 1 add for the All-World Index and 5 for the All-Cap Index. We see 3 stocks moving from All-Cap to All-World and 5 stocks moving the other way.
There are other stocks that are close adds, upweights, downweights and deletes and price moves over the next few days will determine their status.

Link Admin: Dye & Durham’s Cuts Bid Price

Dye & Durham (D&D) has reduced its Offer price for Link Administration (LNK AU) to $4.30/share, down from $5.50/share.
The revised offer followed the Australian Competition and Consumer Commission’s concerns that D&D’s acquisition of Link would lead to dominance in Australia’s conveyancing market.
To facilitate the new Offer, D&D said it is considering providing an undertaking to ACCC – presumably, but not stated, being the sale of its GlobalX business.

A Guide to Thematic Equity ETFs in Korea for Uncrowded Flow Trading Opportunities

Korea’s local ETF market has experienced explosive growth in recent years. Over the past year, total ETF net assets have increased by 42%.
As a result, the flow impact they have on the market is growing significantly. So, we are now in great need to thoroughly investigates the local equity ETF market.
Hence, this post looks at the thematic ETFs, which are still somewhat overlooked by the market, thus providing uncrowded flow trading opportunities.

Link’s Lower Offer of A$4.30 from DND Fails to Excite

Dye & Durham/DND has proposed to lower its offer from A$5.50 to A$4.30 per share. The Link Administration (LNK AU) Board will provide shareholders with an update next week.
DND’s justification for a lower offer based on the potential undertaking to the ACCC and the current state of the financial markets smacks of opportunism.
The proposed lower bid offers no premium to our valuation range or the undisturbed price. The Board should reject the lower offer and instead reignite interest from past suitors.

Tassal Is in the Crosshairs of a Suitor

Glenn Bruce Cooke has acquired a 5.40% stake in Tassal (TGR AU) at an average price of A$3.58. The shares rose 3.1% to close at a 1-year high of A$3.97.
Mr Cooke has shown previous interest in Tassal and its key competitor, Huon Aquaculture (HUO AU). Huon was ultimately acquired by JBS SA (JBSS3 BZ) in November 2021.
Tassal is a better business than Huon due to more stable operations and higher margins. Benchmarking to the Huon transaction multiples implies a floor offer price of A$4.65 per share.

Tencent (700 HK): Impact of Prosus Selling & Passive Inflows

Prosus (PRX NA)/ Naspers (NPN SJ) hold 28.78% of Tencent (700 HK) and will be selling Tencent stock to fund their own buyback due to the large discount to NAV.
At 3-5% of Tencent (700 HK)‘s ADV, the selling will last from 9-15 years, though could take much longer (or not complete) if Prosus/Naspers’ discount to NAV shrinks considerably.
Passive trackers will buy only around 12-14% of the incremental stock and this will lead to a big overhang on Tencent (700 HK) in the near future.

S&P BSE Quiddity Leaderboard Dec 2022: LIC, Shriram Finance, Tata Motors, Dr Reddy’s, & More

By Janaghan Jeyakumar, CFA

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 for the December 2022 Rebalance.
Life Insurance Corp of India (LICI IN) will be added to BSE 200 and BSE 500 at the end of this week. Below are more details on this.
In addition, I have discussed some trading opportunities with interesting potential index flow dynamics.

Before it’s here, it’s on Smartkarma

Jun 27

Event-Driven: NTT (Nippon Telegraph & Telephone), Gcl Poly Energy Holdings Limited, Hanmi Science, Ramsay Health Care, Link Administration, Ultra Electronics Holdings, Spirit Airlines and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

TOPIX Rebalance: Flows at the Close on 29 June
GCL Poly (3800 HK): Double Index Inclusion & HUGE Passive Inflows
KOSPI Size Index Series: September Rebalancing Preview
Merger Arb Mondays (27 Jun) – Ramsay Health, Link Admin, Link Net, True/DTAC, ResApp, Giordano
Link Admin: Speculation Mounts that DND Will Revive the Deal with a Lower Offer
Cobham/Ultra Electronics: UK Government Approval
MergerTalk: Over To You, JetBlue!

TOPIX Rebalance: Flows at the Close on 29 June

The third tranche of the FFW methodology change for the Tokyo Stock Exchange Tokyo Price Index Topix (TPX INDEX) will be implemented at the close of trading on 29 June.
One-Way flow is ~JPY 742bn and will be spread across 2170 stocks. The largest inflow will be on NTT (9432 JP) and the largest outflow on Toyota Motor (7203 JP).
Stocks with the largest impact of inflows have outperformed stocks with the largest impact of outflows, but there has been underperformance over the last couple of weeks.

GCL Poly (3800 HK): Double Index Inclusion & HUGE Passive Inflows

After being suspended for 7 months for not publishing its 2020 annual results, Gcl Poly Energy Holdings Limited (3800 HK) resumed trading on 1 November 2021.
We expect Gcl Poly Energy Holdings Limited (3800 HK) to be added to the MSCI China Index in August and to the FTSE All-World Index in September.
Passive index trackers will need to buy over US$1.1bn of stock over the next few months. The stock has run-up inline with peers and this demand could keep it supported.

KOSPI Size Index Series: September Rebalancing Preview

We generally detect an increase in the buying volume of local institutions for stocks moving from Large Cap to Mid Cap ahead of the KOSPI size index rebalancing.
At the last close, Mid→Large: Pan Ocean, Hyundai Mipo, BGF Retail, & OCI / Large→Mid: Hanmi Science, KCC, DB Hitek, & KEPCO E&C
The level of price impact/correlation in the last rebalancing was exceptionally high. This is reason enough for us to consider setting up a preemptive position for this rebalancing event.

Merger Arb Mondays (27 Jun) – Ramsay Health, Link Admin, Link Net, True/DTAC, ResApp, Giordano

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 Sezzle Inc (SZL AU), Link Administration (LNK AU), 21Vianet Group (VNET US), Alliance Aviation Services (AQZ AU), Ramsay Health Care (RHC AU), Resapp Health (RAP AU).
Lowest gross spreads are Hwa Hong Corp (HWAH SP), AKM Industrial (1639 HK), Irongate Group (IAP AU), Giordano International (709 HK), Uniti Group Ltd (UWL AU), Excelpoint Technology (EXLP SP).

Link Admin: Speculation Mounts that DND Will Revive the Deal with a Lower Offer

The AFR reports that after weeks of talk, Dye & Durham (DND) is expected to lob a revised lower proposal for Link Administration (LNK AU) as soon as this week.
Presumably, DND’s justification for a lower offer is to facilitate ACCC approval timelines. It remains to be seen if this is enough for the Board to recommend a lower offer.
Tweaking the IE’s valuation range for the current peer multiples and PEXA Group (PXA AU) share price points to a Link valuation range of A$3.52-4.40 per share.

Cobham/Ultra Electronics: UK Government Approval

The £2.55 billion takeover of Ultra by Advent looks set to be waved on by the UK government after the Business Secretary said he was minded to accept the deal.
Cobham was itself taken over and broken up by Advent over the course of 2019 and 2020, amidst some controversy. As in that case, Advent will bag its prey.
The 3500p offer price represents 15.4x EV/Fwd EBITDA (same as at the time of deal announcement). Gross spread is 1.49%, estimated annual return is 8.8% (assuming settlement by 30 August).

MergerTalk: Over To You, JetBlue!

By Robert Sassoon

Frontier Airlines (ULCC US)’s improved terms for Spirit Airlines (SAVE US) still falls well short of the Jetblue Airways (JBLU US) offer
ULCC’s enhanced downside protection matching JBLU’s reverse termination fee and bettering its prepayment proposal is the key swing factor where the regulatory path to approval is challenging for either transaction
Given its vigorous pursuit of SAVE so far, we expect JBLU will quickly respond with another counter offer in order to regain the initiative which should keep arbs interested

Before it’s here, it’s on Smartkarma

Jun 26

Event-Driven: Playtech Plc, Toshiba Corp, SenseTime Group, Kakao Pay, West African Resources and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

TTB/Playtech: PUSU Deadline Looming
Asia-Pac Weekly Risk Arb Wrap: Toshiba, Uniden, Giordano, ResApp, Infomedia, SPH REIT, Toyo
Last Week in Event SPACE: Toshiba, Hutch Tel, SenseTime, Giordano, DTAC/True, Toyo Const., ResApp
Kakao Pay: MSCI Will Likely to Continue to Treat Alipay as a Strategic Investor
Index Rebalance & ETF Flow Recap: HSCI, SET50, S&P/ASX, MSCI, EMP PM, AMRT IJ, AMFI, SKT/KT

TTB/Playtech: PUSU Deadline Looming

PUSU deadline for TTB (Gopher) has been extended until 15 July. Playtech states that this time will allow progress in additional negotiations. Talks are credible, but progress is at snail’s pace.
Taking comparables’ median 9x EV/Fwd EBITDA, fair value for Playtech would be 772p. TTB should offer close to 800p to entice the Honk Kong based shareholders who derailed Aristocrat’s offer.
I see the current valuation of Playtech as an attractive entry point, with the upside of a likely bid. Long PTEC LN.

Asia-Pac Weekly Risk Arb Wrap: Toshiba, Uniden, Giordano, ResApp, Infomedia, SPH REIT, Toyo

There are 49 – mostly firm – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
Two new deals this week: Giordano International (709 HK)‘s low-balled Offer; and Uniden Holdings (6815 JP)‘s MBO. Rumours on Toshiba Corp (6502 JP) also.
Key updates took place for: Resapp Health (RAP AU), Infomedia Ltd (IFM AU), Link Net (LINK IJ), Toyo Construction (1890 JP), & SPH REIT (SPHREIT SP)

Last Week in Event SPACE: Toshiba, Hutch Tel, SenseTime, Giordano, DTAC/True, Toyo Const., ResApp

There is a risk that the ¥7,000/share bid for Toshiba Corp (6502 JP) gets pulled/lowered in Round 2 because of due diligence, conditionality, market environment, etc.
Hutchison Telecommunications Hong Kong Holdings (215 HK)‘s share price was up 33% month to date, on triple the average daily volume. Then promptly sheds 23% on an even larger volume.
Even if one assumes that Softbank, Baba, and Cornerstones won’t sell, there is still 45% of SenseTime Group (20 HK) of shares out, worth US$11bn, unlocking next week.

Kakao Pay: MSCI Will Likely to Continue to Treat Alipay as a Strategic Investor

By Douglas Kim

In our view, MSCI will likely to continue to treat Alipay as a strategic investor in Kakao Pay (377300 KS).
This will likely result in a failed inclusion of Kakao Pay in the next round of MSCI Korea Index rebalance.
We also make a comparison to Kakao Pay-Alipay with another block sale involving Kakao Games Corp (293490 KS) and Netmarble Corporation (251270 KS).

Index Rebalance & ETF Flow Recap: HSCI, SET50, S&P/ASX, MSCI, EMP PM, AMRT IJ, AMFI, SKT/KT

No changes for Asia Pacific at the MSCI Annual Market Classification Review. Lots of improvements needed for Korea to move from EM to DM in June 2025 at the earliest.
Lots of changes expected for the HSCI and S&P/ASX family in September. Emperador Inc (EMP PM) and Sumber Alfaria Trijaya Tbk Pt (AMRT IJ) are potential FTSE inclusions in September.
Shimao Services Holdings Limited (873 HK) started trading on Thursday and MSCI has announced the deletion of the stock from the MSCI China Index at the close on 27 June.

Before it’s here, it’s on Smartkarma