In today’s briefing:
- ETFs in Stock Connect: Criteria & Potential Southbound Inclusions
- HSI, HSCEI, HSTECH: June Rebalance Flows Post Capping
- Kakao Pay: Block Deal Sale by Alipay (Big Overhang on Future Sales)
- Alipay’s Kakao Pay Exit: Common Prosperity Policy or Partnership Starting to Crack?
- Yancoal, Not Surprisingly, Rejects Yankuang’s Proposal
- Kakao Pay’s MSCI August QIR Inclusion: Screening/Passive Flow Calculations
- Hwa Hong’s Revised Voluntary Conditional Offer at S$0.40
- Perenti Recycling Cash with Big (Impactful) Buyback
- Yankuang’s Response Suggests that It Rather Wait than Improve Its Offer for Yancoal
- Stock Connect Changes & MSCI/FTSE Deletions on Friday
ETFs in Stock Connect: Criteria & Potential Southbound Inclusions
- On 27 May, the SFC and CSRC announced that they had agreed in principle to the inclusion of Exchange Traded Funds by mainland and Hong Kong exchanges in Stock Connect.
- We currently see 6 ETF being eligible for inclusion in Southbound Connect and another couple that could be included at a subsequent review.
- Increased mainland participation in the ETF market could lead to sustained premium/discount on the ETFs and this will be transmitted to index futures and affect pricing of short-term/long-term repo.
HSI, HSCEI, HSTECH: June Rebalance Flows Post Capping
- The June 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 JD.com Inc. (9618 HK), Tencent (700 HK), Baidu (9888 HK), SMIC (981 HK), Orient Overseas (316 HK), Zhongsheng Group (881 HK), Lenovo (992 HK).
- The largest outflows will be on Meituan (3690 HK), Alibaba (9988 HK), ASM Pacific (522 HK), Kuaishou (1024 HK), AIA (1299 HK), China Construction Bank (939 HK), HKEX (388 HK).
Kakao Pay: Block Deal Sale by Alipay (Big Overhang on Future Sales)
- After the market close today, Kakao Pay (377300 KS) announced that there will be a block deal sale of the company’s shares (5 million) by Alipay Singapore Holdings.
- Alipay is the second largest shareholder of Kakao Pay with a 38.52% stake. After the block deal sale, there will be continued overhang on the remaining shares held by Alipay.
- We continue to have a NEGATIVE view on Kakao Pay and we also have a negative view on this block deal sale as well.
Alipay’s Kakao Pay Exit: Common Prosperity Policy or Partnership Starting to Crack?
- Alipay’s return on investment is 10x, so it may be natural to realize a profit for some stakes. But the local market believes that the strategic partnership is cracking.
- Starting with this stake sale, it is highly likely that Alipay will go through a multi-phased stake sale process similar to that of Temasek/JPM’s Celltrion stake sales.
- Meanwhile, we should also pay attention to the possibility that this block deal by Alipay will likely lead to the inclusion of Kakao Pay in the MSCI August IR.
Yancoal, Not Surprisingly, Rejects Yankuang’s Proposal
- The rejection of Yankuang Energy (1171 HK)‘s proposal by Yancoal Australia (3668 HK) independent board was always on the cards.
- Yet the bigger question remains – why was this unorthodox structure, involving the issuance of H-Share convertible bonds, tabled in the first place?
- Back in Yankuang’s court. Revise terms? Walk away? To note, Yancoal has not, to date, received any formal offer or proposal from Yankuang.
Kakao Pay’s MSCI August QIR Inclusion: Screening/Passive Flow Calculations
- Alipay’s stake sale raises another critical issue: Kakao Pay’s MSCI inclusion. Kakao Pay comfortably satisfies the full MC threshold but tightly exceeds the float MC hurdle.
- As for the passive flow, we should see an inflow of 6.11x ADTV, equivalent to 1.48% of SO. It represents nearly 2M shares, close to ₩210B.
- If we build up a position betting on Kakao Pay’s downward trend due to Alipay’s block deal risk, we should consider temporarily switching the position when this event is triggered.
Hwa Hong’s Revised Voluntary Conditional Offer at S$0.40
- Sanjuro United has increased its voluntary conditional cash offer for Hwa Hong Corp (HWAH SP) by 8.1% to S$0.40 per share. The offer may be revised in a competitive situation.
- The offer which closes on 28 June continues to be subject to a 50%+ minimum acceptance condition. The offeror including valid acceptances represents 24.70% of outstanding shares.
- The shares are trading in line with the revised offer price. The brewing family feud for the control of Hwa Hong suggests a possibility of a counterbid.
Perenti Recycling Cash with Big (Impactful) Buyback
- Global mining services business Perenti Global (PRN AU) was formed through the merger of Barminco and Ausdrill in late 2018.
- Revenues to Dec 2021 are up 156% vs the year to June 2018. Gross profits are up 156% too. OP is up much less because D&A are up dramatically.
- But the company today announced capital management and rationalisation activities had delivered A$134.7mm. They’ve launched a buyback to repurchase 10% of shares. It’s worth a look.
Yankuang’s Response Suggests that It Rather Wait than Improve Its Offer for Yancoal
- Yancoal Australia (YAL AU)’s independent board committee unanimously concluded that Yankuang Energy Group (1171 HK)’s H-Share CBs offer is not in the best interests of Yancoal’s minority shareholders.
- Yankuang is open to continuing its discussions with Yancoal Australia (3668 HK) but maintains that the offer was based on long-term factors including expectations of future coal prices.
- Overall, the wording of Yankuang’s response suggests that it is more inclined to bide its time rather than return with a better offer. Required FIRB approval remains an overhang.
Stock Connect Changes & MSCI/FTSE Deletions on Friday
- Changes to the Northbound Stock Connect Buy and Sell list were announced yesterday with 35 SSE-listed stocks becoming sell-only, and 32 SZSE-listed stocks becoming sell-only.
- This will result in the deletion of 45 stocks from the FTSE All-World, All-Cap and Micro-cap indices, while there will be 9 deletions from the MSCI Standard Index.
- There are a few stocks with over 1 day of ADV to sell from passive trackers and these stocks could trade weaker than the market over the next few days.
Before it’s here, it’s on Smartkarma
