In today’s briefing:
- Hang Seng Index Rebalance Preview: 80 Member Target Achieved; What Next?
- Costa Group (CGC AU): Paine Schwartz Wants It Back
- Arteria Networks (4423) Tender Launches 5 July.
- HDFC/HDFC Bank Merger: Foreigners Sell HDFC; LTIM in NIFTY; JSP in NEXT50
- Toyo Construction (1890) Plans Governance Review, Promises Neutrality on a YFO TOB Proposal Decision
- Yachiyo Industry (7298 JP): Honda’s Pre-Conditional Tender Offer
- Costa Group (CGC AU): Paine Schwartz’s Indicative Proposal
- Quiddity Leaderboard BSE/SENSEX Dec 23: HDFC Intra-Review Replacements & Other Expected Changes
- Hainan Meilan’s (357 HK)’s Arbitration Case Is Not Without Merit
- SSE50 Index Rebalance Preview: Potential Adds Powering Higher
Hang Seng Index Rebalance Preview: 80 Member Target Achieved; What Next?
- We finally got to 80 Hang Seng Index constituents in June. Now comes the next step of moving up to 100 index constituents though there is no timeline for completion.
- The conclusions of the market consultation on the inclusion of foreign stocks in the Hang Seng Index should be announced soon though implementation could start only in December.
- We highlight 10 potential inclusions to the index with passive trading impact varying from 1.5-5.6 days of ADV. There are large shorts on some of the stocks.
Costa Group (CGC AU): Paine Schwartz Wants It Back
- Costa Group Holdings (CGC AU) listed in 2015 when Paine & Partners sold 40% of its stake in the company.
- Paine Schwartz Partners bought a 13.84% stake last year, increased it in March, and has now made an offer to buy out the remaining shares at A$3.5/share in cash.
- Short interest was over nearly 11 days of ADV to cover and short covering could take the stock higher sooner. This is a buy here.
Arteria Networks (4423) Tender Launches 5 July.
- Seven weeks ago, Marubeni Corp (8002 JP) and Secom Co Ltd (9735 JP) announced a joint deal to acquire the rest of ARTERIA Networks Corp (4423 JP).
- As I wrote in the previous piece, the premium was good, but the price was not great. The Board rejected the price, then agreed when the bidders wouldn’t go further.
- Now we have a deal and the Tender Offer starts 5 July. It was cheap to start. It’s still too cheap. But this one is tough to block.
HDFC/HDFC Bank Merger: Foreigners Sell HDFC; LTIM in NIFTY; JSP in NEXT50
- HDFC Limited (HDFC IN) will stop trading at the close on 12 July and will be deleted from all indices at the close on that day.
- As expected, LTIMindtree (LTIM IN) will be added to the NIFTY Index while Jindal Steel & Power (JSP IN) will be added to the NSE Nifty Next 50 Index.
- Importantly, HDFC Limited (HDFC IN)‘s foreign shareholding has dropped over the quarter ended 30 June and that has index implications for future passive flows to HDFC Bank (HDFCB IN).
Toyo Construction (1890) Plans Governance Review, Promises Neutrality on a YFO TOB Proposal Decision
- The Nikkei has an article today with details of an interview with new Toyo Construction (1890 JP) Chairman Yoshida and President Obayashi. There will be a 2-3 month governance review.
- It will review decision-making process, “profit management” (利益管理), and business investment decisions (事業への投資判断). Chairman Yoshida had a quote on neutrality on a YFO proposal. My wording there was carefully chosen.
- The President also said they expect ongoing synergies with Infroneer, and will maintain MTMP/Mitsui OSK Partnership management plans. Their words were chosen carefully too.
Yachiyo Industry (7298 JP): Honda’s Pre-Conditional Tender Offer
- Yachiyo Industry (7298 JP) has recommended Honda Motor (7267 JP)’s pre-conditional tender offer of JPY1,390 per share, a 17.5% premium to the undisturbed price.
- Post-Completion, Honda will transfer a 81% stake to Samvardhana Motherson Automotive Systems Group BV. The pre-conditions relate to various country approvals (China, the US, Brazil, and India).
- The offer is expected to open in October. Achieving the 66.67% minimum ownership ratio requires a 32.6% minority acceptance rate which is doable as the offer is reasonable.
Costa Group (CGC AU): Paine Schwartz’s Indicative Proposal
- Costa Group Holdings (CGC AU) has disclosed an indicative non-binding proposal from Paine Schwartz Partners at A$3.50 per share (A$3.54 including potential interim dividend).
- The Board has granted eight weeks of non-exclusive due diligence. The due diligence, which started on 6 June, ends on 1 August.
- The offer price is attractive compared to peer multiples and historical trading ranges. At the current price of A$3.35, the gross spread is 4.5% (5.7% including dividend).
Quiddity Leaderboard BSE/SENSEX Dec 23: HDFC Intra-Review Replacements & Other Expected Changes
- In this insight, we take a look at the Potential ADDs/DELs for the BSE SENSEX, 100, and 200 Indices in the December 2023 Rebalance.
- The HDFC/HDFC Bank Merger is expected to trigger index changes in the next few days and we take a look at our expectations for these intra-review changes.
- Apart from that, I see no other changes for SENSEX in December 2023. However, there could be up to six changes for both BSE 100 and BSE 200.
Hainan Meilan’s (357 HK)’s Arbitration Case Is Not Without Merit
- Back On 29 September 2019, Hainan Meilan International Airport (357 HK) entered into a subscription agreement with Hopu-affiliate Aero Infrastructure, for 200mn new H shares at HK$4.69/share.
- That issuance failed as CSRC approval was not secured by the Long Stop. Hopu reckoned HMIA reneged on its duties to secure approval and lodged a notice of arbitration.
- HKIAC recently agreed and opines HMIA did not use its best endeavours to complete the subscription. Hopu is seeking up to HK$6.962bn in compensation. Quite the overhang.
SSE50 Index Rebalance Preview: Potential Adds Powering Higher
- Two thirds of the way through the review period, we see 10 potential adds/8 potential deletes in December. However, there can be a maximum of 5 changes at a review.
- We estimate a one-way turnover of 5.8% at the December rebalance leading to a one-way trade of CNY 4.67bn. Index arb balances could increase the impact on the stocks.
- The potential adds have outperformed the potential deletes over the last six months and there has been renewed outperformance over the last month.
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