In today’s briefing:
- Kenedix Office/Resi/Commercial Three-Way Merger – Size Matters and Index Flows Do Too
- Potential Delisting of 5 Preferred Stocks in Korea at End of June
- Korea FSS Favors 10% Treasury Stock Limit over Mandatory Cancellation: At-Risk Names
- KOSDAQ150 Ad Hoc Index Rebalance: HFR (230240) To Replace BH (090460)
- Kenedix Merger: Office, Residential, Retail & Index Implications
- Tesserent (TNT AU)’s Offer From Thales
- HSTECH Index Rebalance Preview (Sep): One Change or Two?
- Hailan (2278 HK): Yeung Bets On Shareholder Apathy
- Kenedix Office Investment (8972 JP): Merger with Kenedix Residential and Kenedix Retail REIT
- Tesserent (TNT AU): Thales’s A$0.13 Offer
Kenedix Office/Resi/Commercial Three-Way Merger – Size Matters and Index Flows Do Too
- Today after the close, Kenedix Office Investment Co (8972 JP), Kenedix Retail REIT (3453 JP), and Kenedix Residential Investment (3278 JP) announced a three-way merger for Nov 1.
- Kenedix Office REIT (KDO) will be the surviving entity, and what is now three REITs of ¥150-250bn in size will become one diversified REIT of ¥630-650bn.
- That will trigger a size uplift and should also trigger index inclusion.
Potential Delisting of 5 Preferred Stocks in Korea at End of June
- In this insight, we discuss the increasing likelihood of delisting of five preferred stocks in Korea at end of June.
- These five preferred stocks are as follows: Samsung Heavy Industries Pref, SK Networks Pref, DB Hitek Pref, Hyundai BNG Steel Pref, and Heungkuk Fire & Marine Insurance Pref 2B.
- Because the combined market cap of these five preferred shares is 37 billion won, it will have only a minor, positive impact on their common counterparts.
Korea FSS Favors 10% Treasury Stock Limit over Mandatory Cancellation: At-Risk Names
- The local market believes that the FSS plans to push forward with the 10% limitation measure. Last week’s seminar served as a proactive way to inform the market about it.
- The market is paying attention to the potential emergence of stock overhang risks due to the establishment of limits on listed companies’ treasury stock holdings.
- Lotte Holdings and Doosan Corp are considered to fall into this category. They may attempt to sell treasury stock early on to meet the 10% limit.
KOSDAQ150 Ad Hoc Index Rebalance: HFR (230240) To Replace BH (090460)
- Following Bh Co Ltd (090460 KS) moving from the KOSDAQ to KOSPI Market, the stock will be deleted from the KOSDAQ 150 Index and replaced with HFR Inc (230240 KS).
- The change will be implemented at the close on 19 June and passive trackers will need to trade over 1x ADV on both stocks.
- We had HFR Inc (230240 KS) as a potential replacement candidate and there could be pre-positions built up on the stock.
Kenedix Merger: Office, Residential, Retail & Index Implications
- Kenedix Office Investment Co, Kenedix Residential Investment and Kenedix Retail REIT have announced a three-way absorption merger to create Kenedix Realty Investment Corporation.
- The increased size and liquidity of the merged entity will put the stock on the radar of active investors and there could be a re-rating higher.
- There will be some passive flows into the merged entity at the time of merger implementation and this will help the stock outperform its peers.
Tesserent (TNT AU)’s Offer From Thales
- Cybersecurity firm Tesserent Ltd (TNT AU) has announced it has entered into a Scheme with France’s Thales SA (HO FP).
- Thales is offering A$0.13/share, a whopping 165% premium to last close. Although, TNT is down 87% from its January 2021 high.
- The Offer is conditional on TNT shareholder approval and FIRB/OIO approvals. Those regulatory approvals will not be straightforward.
HSTECH Index Rebalance Preview (Sep): One Change or Two?
- We expect one change to the Hang Seng Tech Index (HSTECH INDEX) in September – though there could be a second change as well.
- Estimated one-way turnover is 2.13% resulting in a one-way trade of HK$2.01bn in case there are two index changes. Turnover will be lower if there is only one change.
- Short interest on some of the potential changes is over 15% of float and there could be big moves on the stocks post announcement of the changes.
Hailan (2278 HK): Yeung Bets On Shareholder Apathy
- Back on the 8 May, small-cap PRC property play Hailan Holdings (2278 HK) announced a voluntary Offer from Yueng Man, Hailan’s controlling shareholder.
- The Offer Price is HK$3.38/share, a miserly 5% premium to last close, and a 60% discount to the RNAV. The Composite Doc is now out.
- The key condition is Yueng getting 90% of disinterested shareholders to tender. That looks a stretch, yet minorities are disengaged. Not one has turned up at the last three AGMs.
Kenedix Office Investment (8972 JP): Merger with Kenedix Residential and Kenedix Retail REIT
- The merger ratio is 0.67 Kenedix Office Investment Co (8972 JP)/KDO units per Kenedix Residential Investment (3278 JP)/KDR unit and 0.84 KDO units per Kenedix Retail REIT (3453 JP)/KRR unit.
- The merger is sensible due to scale (the merged entity will be the third-largest J REIT by asset size), expansion opportunities and improved capital recycling.
- The merger requires approval from all three sets of unitholders. We think this is likely as the deal metrics are fair for all three sets of unitholders.
Tesserent (TNT AU): Thales’s A$0.13 Offer
- Tesserent Ltd (TNT AU) has entered into a scheme implementation deed with Thales SA (HO FP) at A$0.13 per share, a juicy 165.3% premium to the undisturbed price (9 June).
- The offer is subject to several conditions such as shareholder, FIRB and OIO approval. FIRB approval is likely due to Australia and France being part of the Nine Eyes alliance.
- Despite the substantial premium, shareholders’ acceptance of the offer could be a risk due to their higher buy-in prices. At the last close, the gross spread is 8.3%.
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