In today’s briefing:
- Shin Kong (2888.TW) And Taishin (2887.TW) Agree to Merge, But It Isn’t Clean, And It’s A Bad Price
- Korea FSS Chief Calls for 10% Premium/Discount on Doosan Merger, Boosting Swap Spread to 30%
- NIFTY MIDCAP150 Index Rebalance: 19 Changes a Side; Lots of Overlap with Other Index Flow
- Quiddity NIFTY Sep 24 Rebal: US$647mn One-Way Capping for NIFTY Next 50; All Changes Were Predicted
- Huafa Property Services (982 HK): What’s Going on as Shares Trades Very Wide Ahead of the Vote?
- NIFTY NEXT50 Index Rebalance: 7 Changes on Expected Lines
- Zomato: Index Inclusions & Passive Impact (Once Added to F&O)
- Merger Arb Mondays (26 Aug) – China TCM, Henlius, Canvest, GA Pack, Huafa, Tohokushinsha
- Henlius (2696 HK): Was There Any Doubt?
- KRX Sector Indexes’ Rebalancing Event, Often off Traders’ Radar but with Significant Price Impacts
Shin Kong (2888.TW) And Taishin (2887.TW) Agree to Merge, But It Isn’t Clean, And It’s A Bad Price
- After rumours were rekindled a week earlier, on 22 August 2024, Taishin Financial Holding (2887 TT) and Shin Kong Financial Holding (2888 TT) announced they would merge.
- The ratio is 0.6022 shares of Taishin for every share of Shin Kong putting NEWCO assets at about the level of Taiwan #3 CTBC Financial. That’s bad.
- There’s history here. LOTS of history. This would need approvals from the FSC and FTC, but CTBC is already a spoiner, and the SKFH Board Meeting was anything but clean.
Korea FSS Chief Calls for 10% Premium/Discount on Doosan Merger, Boosting Swap Spread to 30%
- FSS Governor Lee challenged the legality of the Robotics-Bobcat merger ratio, citing Article 176-5 of the Capital Markets Act, allowing a 10% premium or discount.
- Following the FSS Governor’s statements, Doosan must likely apply a 10% premium/discount to the Robotics-Bobcat merger, creating a 30% spread based on current stock prices.
- Doosan may still revise or cancel the merger, but the FSS Governor’s comments might boost Bobcat short-term. Given the uncertainty, aggressive trading is risky.
NIFTY MIDCAP150 Index Rebalance: 19 Changes a Side; Lots of Overlap with Other Index Flow
- There are 19 changes a side for the NIFTY Midcap 150 Index at the September rebalance. There are many stocks with same-way flows from passive trackers of other indices.
- Estimated one-way turnover is 9.8% resulting in a one-way trade of INR 8.2bn (US$98m). With US$40.1bn tracking the index actively, the impact on the stocks will be much larger.
- The adds have outperformed the deletes this year, though near-term performance has been meh. There was a similar trend in March and the adds could outperform nearer to implementation.
Quiddity NIFTY Sep 24 Rebal: US$647mn One-Way Capping for NIFTY Next 50; All Changes Were Predicted
- The September 2024 Rebalance results for the NIFTY broad market Indices were announced after the close on Friday 23rd August 2024.
- There will be two changes for NIFTY 50 and five changes for NIFTY 100 during the September 2024 index rebal event. All of these changes were as predicted.
- All NIFTY 50 and NIFTY 100 changes will also be reflected in the NIFTY Next 50 index which could see US$647mn one-way capping flows.
Huafa Property Services (982 HK): What’s Going on as Shares Trades Very Wide Ahead of the Vote?
- The Huafa Property Services Group (982 HK) vote on Huafa Industrial Co., Ltd. Zhuhai (600325 CH)’ HK$0.29 offer is on 28 August. However, shares trade wide ahead of the vote.
- Several readers have enquired about the unusually high spread ahead of the vote of a seemingly clean deal. The conversations raised several concerns.
- The concerns are unwarranted, and this remains a clean deal. At the last close and for the 30 September payment, the gross/annualised spread was 5.5%/68.9%.
NIFTY NEXT50 Index Rebalance: 7 Changes on Expected Lines
- There are 7 changes for the NSE Nifty Next 50 Index (NIFTYJR INDEX) that will be implemented at the close on 27 September. Changes are on expected lines.
- Estimated one-way turnover for the Nifty Next 50 Index (NIFTYJR INDEX) is 19.6% resulting in a one-way trade of INR 63.64bn (US$759m). Many stocks have over 1x ADV to trade.
- The adds have outperformed the deletes this year but there has been big underperformance over the last month as stocks expected to benefit from rural spending have rallied.
Zomato: Index Inclusions & Passive Impact (Once Added to F&O)
- Zomato (ZOMATO IN) has a market cap of over US$27bn but is not a member of the NIFTY Index and S&P BSE SENSEX Index since it is not an F&O member.
- Once SEBI’s proposed and enhanced stock inclusion thresholds are implemented, Zomato (ZOMATO IN) should be added to the F&O segment of the market.
- Passive NIFTY Index and S&P BSE SENSEX Index will have to buy a lot of Zomato stock at subsequent rebalances. The impact will be higher given the lower real float.
Merger Arb Mondays (26 Aug) – China TCM, Henlius, Canvest, GA Pack, Huafa, Tohokushinsha
- We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
- Highest spreads: Yichang HEC Changjiang Pharma (1558 HK), China Traditional Chinese Medicine (570 HK), Canvest Environmental Protection Group (1381 HK), Malaysia Airports Holdings (MAHB MK), Capitol Health (CAJ AU).
- Lowest spreads: Tohokushinsha Film (2329 JP), Fuji Soft Inc (9749 JP), Descente Ltd (8114 JP), Second Chance Properties (SCE SP), Fancl Corp (4921 JP), C.I. TAKIRON Corporation (4215 JP).
Henlius (2696 HK): Was There Any Doubt?
- Roughly six weeks ago, Shanghai Henlius Biotech (2696 HK) announced the scrip option condition was met. Just that Shanghai Fosun Pharmaceutical (2196 HK) (the Offeror) was weighing its options
- This situation mirrored L’Occitane (973 HK)‘s (eventual) scrip option. And in place of Pleasant Lake in that transaction; Henlius has Loyal Valley Capital (5.8309% shareholder) behind the scenes.
- Late Friday, Henlius updated the terms of Fosun’s Offer to now include the scrip option alternative. We expected nothing less. 1H24 results will also be out later today.
KRX Sector Indexes’ Rebalancing Event, Often off Traders’ Radar but with Significant Price Impacts
- Early position buildup has minimal price impact, and even after the announcement, only a few stocks with a larger passive impact see significant movement.
- Since these KRX sector indices include many small to mid-cap stocks, the price impact of constituent changes on ETF rebalancing day was quite noticeable.
- Due to potential learning effects, build positions in predictable high-impact stocks before the announcement, then monitor flows and impacts to decide on targeting the ETF rebalancing trading day.
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