Brief Australia: ECM Weekly (23 March 2019) – ESR, Sun Car, Ruhnn, CanSino, Frontage, Wuxi Bio, WiseTech, and more

In this briefing:

1. ECM Weekly (23 March 2019) – ESR, Sun Car, Ruhnn, CanSino, Frontage, Wuxi Bio, WiseTech,
2. Gold May Rise on Lower Real Ylds; Canada Leads Fall in Real Ylds; Aust Inflation Expectations Slump
3. Navitas Gets An Agreed Deal with BGH
4. Navitas (NVT AU): BGH Heads Towards Its First Major Acquisition
5. Medco’s Bump For Ophir Won’t Sway Petrus

1. ECM Weekly (23 March 2019) – ESR, Sun Car, Ruhnn, CanSino, Frontage, Wuxi Bio, WiseTech,

Aequitas Research puts out a weekly update on the deals that have been covered by Smartkarma Insight Providers recently, along with updates for upcoming IPOs.

Accuracy Rate:

Our overall accuracy rate is 72.3% for IPOs and 64.3% for Placements 

(Performance measurement criteria is explained at the end of the note)

New IPO filings

• Yunji (the U.S, ~US$200m)
• 360 LuDaShi (Hong Kong, potentially >US$100m)
• CMGE Tech (Hong Kong, re-filed)
• Mulsanne Group – FKA Alpha Smart – AKA GXG (Hong Kong, re-filed)
• Xinyi Energy (Hong Kong, re-filed)

Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.

News on Upcoming IPOs

• Chinese AI start-up Megvii mulls IPO in either Hong Kong or New York to raise  US$800m
• Lendlease planning to raise up to US$500m with retail Reit listing on SGX
• Indonesia’s Lion Air Starts Work on $1 Billion IPO
• Chinese Tower Operator Guodong Is Said to Plan Hong Kong IPO
• Feihe International ‘revisits plan for Hong Kong IPO’
• Solar co Xinyi Energy revives Hong Kong IPO plan

This week Analysis on Upcoming IPO

• Ruhnn (如涵) Pre-IPO Review- Significant Concentration Risk
• Frontage Holding (方达控股) IPO: Updates from 2018 Numbers
• Sun Car Insurance Agency (盛世大联) IPO: Over Valued Vs P&C Companies
• ESR Cayman Pre-IPO – Earnings and Segment Analysis
• CanSino Biologics (康希诺) IPO: Valuation Attractive, Lilly Asia Doubling Up (Part 4)
• PagerDuty IPO Preview

2. Gold May Rise on Lower Real Ylds; Canada Leads Fall in Real Ylds; Aust Inflation Expectations Slump

• The broad decline in global bond yields and curve flattening suggest that the market has become more concerned about weak global economic growth.
• The fall in yields is at odds with the rise in equity and commodity prices this year, but the later may have lost upward momentum.
• Safe haven currencies, gold and JPY, have strengthened this week and are likely to perform well if yields remain low.
• US real yields have fallen more than nominal yields this year, with a partial recovery in inflation expectations from their fall in Q4 last year. Lower real yields point to weaker fundamental support for the USD, and further support safe havens like gold.
• Canadian real long term yields have fallen more abruptly than in the USA, into negative territory, suggesting the outlook for the Canadian economy has deteriorated more than most. This may relate to concern over a peaking in the Canadian housing market. The fall in real yields suggests further downside risk for the CAD.
• Long term inflation breakevens have fallen in Australia sharply since September last year to now well below the RBA’s 2.5% inflation target.
• Australian leading indicators of the labour market have turned lower, albeit from solid levels, and may be enough, combined with broader evidence of weaker growth, for the RBA to announce an easing bias as soon as April.
• Asian trade data and flash PMI data for major countries point to ongoing and significant weakness in global trade.

3. Navitas Gets An Agreed Deal with BGH

After 6 months of haggling and due diligence, debt negotiation, and structuring, global education company Navitas Ltd (NVT AU) has now signed a Board-recommended Scheme Implementation Deed with a consortium led by Australian Private Equity firm BGH Capital consortium which includes Navitas Founder Rod Jones (also the largest holder at 13%) and AustralianSuper.

The agreed Scheme Price of A$5.825 is a 6% uplift from the original A$5.50 offered in the preliminary, indicative, non-binding offer announced on 10 October 2018 and a 34% premium to the undisturbed price of 9 October 2018 of A$4.35/share.

This history is that the consortium came in at A$5.50 (plus another cash+RollCo scrip offer), a month or so later the company effectively rejected it by not allowing the consortium to do due diligence after management lifted earnings guidance. This upset a number of shareholders. In November the share price ranged from A$4.95-5.25 or so and Chairman Tracey Horton got only 51% support at the AGM that month. The shares fell briefly below A$4.70 in early January this year before BGH came back in mid-January with a “revised indicative offer” of A$5.825 whereupon the shares bounced from about A$4.90 to about A$5.50 then climbed to A$5.60+ on 10mm shares volume in 3 days. 

The shares hovered around A$5.58-5.62 for 6-7 weeks until the beginning of March, briefly traded into the A$5.70s, and then traded back down the last few days this week to the A$5.59-5.63 area.

On Thursday 21 March the shares were halted for the day, StreetTalk had an article about the deal being imminent, and late in the afternoon, the BGH SID was announced. 

Now we start the official process. The Scheme document is expected to be dispatched in May 2019 with a deal completed by end-June or early July. I expect this deal gets up.

4. Navitas (NVT AU): BGH Heads Towards Its First Major Acquisition

Navitas Ltd (NVT AU), an Australian-listed education company, entered into a binding agreement to be acquired by the BGH Consortium. As a reminder on 15 January 2019, the BGH Consortium bid against itself by offering a revised proposal of A$5.825 cash per share, 6% higher than its previous rejected offer.

5. Medco’s Bump For Ophir Won’t Sway Petrus

The boards of Medco Energi Internasional T (MEDC IJ) and Ophir Energy (OPHR LN) have agreed to increase the Offer price to £0.575 from £0.55, representing a 73.2% premium to the undisturbed price.

All other details of the scheme remain unchanged. The court meeting is to take place on the 25 March, while the long stop is the 20 June – unless both companies agree to an extension.

On Petrus

Petrus has yet to respond to the Offer increase; however, it would be surprising if its stance against the takeover has altered. 

In its prior letter to Ophir on the 14 January, Petrus recommended selling the South-East Asian (SEA) assets to Medco – excluding the Tanzanian and Mexican investments – with a low-end fair value, before synergies, of £0.64/share, through to £1.42/share on a blue sky basis.

Shortly before the increase, Petrus was quoted (paywalled) it would vote its 3.95% against the takeover, while adding “Our satisfaction with the value our board deems as satisfactory has decreased further“, with reference to the release of Ophir’s full-year results on the 12 March.

On Sand Grove/Coro

Subsequent to the bump, Coro Energy PLC (CORO LN), which had previously submitted a non-binding cash/scrip reverse takeover offer on the 8 March, declared it has no intention to bid.

Sand Grove has also announced it has given an irrevocable undertaking to vote its 18.73% in favour of the scheme. Coro held discussions with Sand Grove before abandoning its bid.

Trading Tight – Upside Less Assured

Medco’s Offer is conditional on 75%+ approval from Ophir’s shareholders, which appears less tenuous following the 4.5% bump and Sand Grove’s irrevocable undertaking. While I consider the offer for Ophir sub-optimal – and shares have closed above terms on 30% of the trading days since Medco’s initial offer – Petrus alone cannot disrupt the vote. Of note, the next three largest shareholders behind Sand Grove have reduced their holdings since end-December 2018.

The gross/annualised spread is tight at 0.7%/2.6%, assuming early-July payment. The risk/reward in punting at or just below terms is now less attractive following this Offer Price increase and the irrevocable undertaking.