In today’s briefing:
- Alibaba (9988 HK/BABA) Dual Primary Listing: Are We There Yet?
- Alibaba (9988 HK): Dual Primary Listing & Potential Southbound Flows
- Couche-Tard Bid for 7&I (3382) – FEFTA and Economic Security
- TCM (570 HK): Profit Warning Is No Biggie
- A Tender Offer to Purchase a 17.5% Stake in Hanwha Galleria by Kim Dong-Sun
- StubWorld: More Partial Offers In The Hanwha Group Complex
- Innovent Biologics (1801 HK) Adds to Its Oncology Portfolio
- Both Hanwha Aerospace Spinoffs Remain in KOSPI 200: Trading Value Gap Between Trading Suspension
- Examining the Severity of Proration Risk in the Hanwha Galleria Tender Offer
- Brookfield/Grifols: Update & Recap, Spread, Discount
Alibaba (9988 HK/BABA) Dual Primary Listing: Are We There Yet?
- In its last update, Alibaba Group announced that the company was preparing for its primary listing in Hong Kong and the process was expected to complete by the end August.
- The Board meets on 14 August to approve results for the three months ending June. Could there be an announcement on the dual primary listing too?
- Mainland Chinese own between 3.5%-15.5% of companies that converted from Secondary to Dual-Primary in the last few years. Similar buying in Alibaba could take the stock higher from here.
Alibaba (9988 HK): Dual Primary Listing & Potential Southbound Flows
- Along with its fiscal 2024 results, Alibaba (9988 HK) announced that they were preparing for their primary listing in Hong Kong and the conversion was expected to complete by August.
- If the conversion is completed by the end of August, Alibaba (9988 HK) could be added to Southbound Stock Connect in September and that could bring in significant flows.
- We do not forecast any passive inflows due to the change with Alibaba Group Holding (9988 HK) capped at 8% of the HSI, HSCEI and HSTECH indices.
Couche-Tard Bid for 7&I (3382) – FEFTA and Economic Security
- The largest potential inbound cross-border M&A in years – for a national champion no less – gets a lot of press coverage.
- This morning, a Nikkei article noted Alimentation Couche-Tard (ATD CN) was likely to need “prior approval” from Japanese regulatory authorities for its takeover “the Nikkei has learned.”
- It wasn’t difficult for the Nikkei to learn that. METI publishes a FEFTA List. 7&i has been on it for years as Type II Designated Business, requiring prior approval.
TCM (570 HK): Profit Warning Is No Biggie
- China Traditional Chinese Medicine (570 HK) flagged a 60-70% drop in its 1H24E net profit versus 1H23, due to reduced sales/profit of TCM concentrate, bad debt provisions, and remedial taxes.
- MAC triggers? No – Sinopharm won’t exercise such right, even if one was ostensibly triggered. I’d be surprised if Sinopharm wasn’t fully aware of TCM’s underlying operations.
- Get involved on any dips today. Trading wide at a 11.7%/38.7% gross/annualised spread, assuming Dec-end payment.
A Tender Offer to Purchase a 17.5% Stake in Hanwha Galleria by Kim Dong-Sun
- It was announced that a tender offer to purchase a 17.54% stake in Hanwha Galleria has been launched by Kim Dong-Sun (Vice President at Hanwha Galleria).
- Tender offer price is 1,600 won per share, which is 22.8% higher than the closing price on 22 August. Tender offer amount is 54.4 billion won.
- On 23 August, Hanwha Galleria’s share price is likely to rise close to the tender offer price as many investors believe the tender offer is likely to be successful.
StubWorld: More Partial Offers In The Hanwha Group Complex
- After the Kim family-backed Hanwha Energy completed Hanwha Corporation‘s Partial Offer last month, Hanwha Galleria (452260 KS)‘s VP Kim Dong-seon has now launched a Partial Offer for 17.5% in Galleria.
- Preceding my comments on Hanwha are the current setup/unwind tables for Asia-Pacific Holdcos.
- These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.
Innovent Biologics (1801 HK) Adds to Its Oncology Portfolio
- Dupert, a drug for the special treatment of non-small cell cancer has been approved by the NMPA.
- In 2022, China recorded the highest number of new cancer cases, and their exceptional high incidence of smoking is of particular concern.
- Innovent’s portfolio of nine oncology drugs is very attractive in the biggest cancer market.
Both Hanwha Aerospace Spinoffs Remain in KOSPI 200: Trading Value Gap Between Trading Suspension
- KRX announced that both Hanwha Aerospace and the new Hanwha Industrial Solutions will be added to the KOSPI 200.
- Since 2020, two K200 spinoffs had both companies remain: DL Holdings and DL E&C in January 2021, and SK Telecom and SK Square in November 2021, with notable value increases.
- This trade isn’t risk-free and requires a sophisticated hedge setup, but the trading opportunities from this flow situation are worth close attention.
Examining the Severity of Proration Risk in the Hanwha Galleria Tender Offer
- The Hanwha Galleria tender offer has no cancellation risk but carries proration risk, keeping the spread at around 7%.
- For Hanwha Galleria, most floating shares are held by retail investors, and the smaller float size compared to Hansol Logistics further reduces proration risk.
- Even though the actual trading volume might be a concern, it’s still worth thinking about going for an aggressive strategy to take advantage of the spread, which is around 7%.
Brookfield/Grifols: Update & Recap, Spread, Discount
- Bloomberg reported that Brookfield (BN CN) is seeking bank backing for up to €9.5 billion in debt to facilitate a potential take-private acquisition of Grifols SA (GRF SM).
- Considering a €10.18/share possible offer price (institutionals are seeking €12), the A shares are trading at a 7.3% gross spread and are pricing a 62.5% possibility of deal completion.
- The preferreds trading at 17.5% discount vs ordinary shares should be favored in case of takeover, with Long B shares/short A shares my preferred way to get involved.
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