In today’s briefing:
- A Taiwan Basket Trade For A Special Index Rebal
- HSI, HSCEI, HSTECH: September Rebalance Flows Post Capping
- SKT ADR Play on the 31st for MSCI Exclusion
- S&P BSE Quiddity Leaderboard Dec 2022: Multiple Adani Names with F&O Question Marks
- Nitro’s Opportunistic A$1.58 Offer from Potentia
- Doosan Corp: A Block Deal Sale of 4.5% Stake in Doosan Enerbility
- Link Net: Axiata’s MTO Kicks Off Today
- Leapmotor IPO – Index Inclusion Timeline
- Open Text/Micro Focus: Next Chapter in an Acquisition Growth Story
- A Separation of Korea Zinc Group & Young Poong Group by the Choi & Jang Families?
A Taiwan Basket Trade For A Special Index Rebal
- The FTSE TWSE Taiwan indices get rebalanced in line with the standard FTSE Global indices – on the third Friday of September.
- The most interesting one is the probably the least famous. It has only one change but it has massive re-weightings because of the way the index is constructed.
- Historical patterns suggest a right-way long-short basket, reversed on the event, is a good trade.
HSI, HSCEI, HSTECH: September Rebalance Flows Post Capping
- The September rebalance of the HSI, HSCEI and HSTECH indices will use today’s closing prices to cap the index constituents at 8%. This will lead to large flows.
- The largest inflows will be on Baidu (9888 HK), SenseTime Group (20 HK), China Shenhua Energy (1088 HK), Tencent (700 HK), Kuaishou Technology (1024 HK) and Anta Sports (2020 HK).
- The largest outflows will be on Meituan (3690 HK), AIA Group (1299 HK), Sunny Optical (2382 HK), SMIC (981 HK), China Pacific Insurance (2601 HK) and China Construction Bank (939).
SKT ADR Play on the 31st for MSCI Exclusion
- We need a hedge to short SKT on the 31st. For this, we need to consider trading SKT ADR, which is pretty liquid as DTV reaches nearly $8mil.
- The play structure is simple. It exploits the pattern that passive flow is concentrated on underlying shares rather than ADRs. We witnessed this pattern in the last two cases.
- Passive outflow may be aggravated since SKT leaves not only STANDARD but also sub-indices such as ESG. So, the degree of a temporary DR premium can get thicker.
S&P BSE Quiddity Leaderboard Dec 2022: Multiple Adani Names with F&O Question Marks
- 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.
- Based on the latest data, I expect one ADD/DEL for SENSEX, one ADD/DEL for BSE 100, and 3 ADDs/DELs for BSE 200.
- The potential ADDs/DELs for SENSEX could see index flows of US$100mn or more but the other index changes are both small in size and volume impact (days-to-trade).
Nitro’s Opportunistic A$1.58 Offer from Potentia
- Nitro Software Ltd (NTO AU) entered a trading halt in response to an AFR report that Potentia has lobbed an indicative non-binding proposal at A$1.58 per share.
- Potentia’s offer follows its success in securing a 17% stake at A$1.58 per share on Monday night. The stake is large enough to deter rival schemes.
- The offer is opportunistic and unattractive. However, the ability of Potentia to relatively quickly secure a significant stake suggests that the Board will be under pressure to engage.
Doosan Corp: A Block Deal Sale of 4.5% Stake in Doosan Enerbility
- After the market close today, Doosan Corp (000150 KS) announced that it plans to sell a 4.5% stake in Doosan Enerbility (034020 KS) in a block deal sale.
- The discount range on the block deal price is 5.1% to 7.8% based on today’s closing price of 21,700 won.
- This block deal sale should have a positive impact on Doosan Corp but a negative impact on Doosan Enerbility.
Link Net: Axiata’s MTO Kicks Off Today
- After Axiata (AXIATA MK) completed the acquisition of 66.03% in Link Net (LINK IJ) on the 22 June, Axiata was obligated to undertake a mandatory offer for the remaining 33.97%.
- The MTO commences today and concludes on the 28 September. Payment will be the 6 October.
- There are no conditions attached to the MTO. Play the spread, where available.
Leapmotor IPO – Index Inclusion Timeline
- Leapmotor (2007699D HK) is said to be looking to raise between US$1bn-US$1.5bn by selling 290.9m shares in its IPO. At the top end, the company will be valued at HK$53bn.
- The performance of its peers over the last year leaves a lot to be desired and could lead to lower demand in the IPO.
- Leapmotor (2007699D HK) should be added to the HSCI and the Hang Seng Tech Index, though timing depends on when the stock lists on the HKEX (388 HK).
Open Text/Micro Focus: Next Chapter in an Acquisition Growth Story
- Open Text agreed a 532p/share cash offer for legacy software, highly leveraged FTSE250 constituent, Micro Focus (98% premium, 2.3x EV/Fwd Revenues, 6.4x EV/Fwd EBITDA), taking advantage of target’s downwards re-rating.
- My TP based (5.6x EV/Fwd EBITDA based) is 350p, which reflects macro challenges. Although the offer from Open Text seems every generous, ROIC could reach low single teens.
- Gross spread is 2.35% and the estimated annual return would be 4.38% assuming settlement by mid-February. Irrevocables amount to 16.62%, the lengthy part will be antitrust and FDI approvals. Long.
A Separation of Korea Zinc Group & Young Poong Group by the Choi & Jang Families?
- The history of Young Poong Group goes back nearly 73 years ago in 1949 when two young men Ki-ho Choi and Byeong-hee Jang founded Young Poong.
- Young Poong Group and Korea Zinc could be separated from each other with the Choi family controlling Korea Zinc and Jang family controlling Young Poong and related affiliates.
- The bullish case for Young Poong and Korea Zinc would be that once they are separated, there could be greater management transparency and ownership structure which could boost overall efficiency.
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