In today’s briefing:
- CSRC and PCAOB “Agree” On Audit Terms – Now PCAOB Will Try To Prove a Negative
- STAR50 Index Rebalance: Adds Continue to Outperform as Changes Are Announced
- Index Rebalance & ETF Flow Recap: FTSE AW/AC, CH 50/A50, STI, KLCI, TW 50/Div+, STAR50, EPRA Nareit
- Last Week in Event SPACE: Toshiba, Swire Pacific, Ramsay Health, Pendal, Intouch
- Ramsay and KKR’s Game of Cat and Mouse
- China Property Management: Lacking Independence
- KODEX FnGuide Battery ETF Rebalancing Checkup
- (Mostly) Asia-Pac Weekly Risk Arb Wrap: Ramsay Health, Pendal, Nearmap, Xiamen Port, PTB Group, MACA
- ECM Weekly (28th Aug 2022) – China Tourism, BA REIT, Hongjiu Fruit, YH Ent, Biocyto, WM, APM, Daiwa
- Merger Arb Mondays (29 Aug) – Ramsay, DTAC/True, Pendal, Link Admin, Ramsay, Infomedia, ResApp, MACA
CSRC and PCAOB “Agree” On Audit Terms – Now PCAOB Will Try To Prove a Negative
- Friday in US time, the China Securities Regulatory Commission (CSRC), China’s MOF, and the US Public Company Accounting Oversight Board (PCAOB) “agreed” on a Statement of Protocol.
- This SoP sets the outlines for PCAOB access to inspect/investigate audit papers and accounting firms in China and HK for companies listed in the US.
- The releases’ difference in language is to be expected – different constituencies – but as PCAOB Chair Williams said, “Now we will find out whether those promises hold up.”
STAR50 Index Rebalance: Adds Continue to Outperform as Changes Are Announced
- The index committee has continued to use a 6 month minimum listing history leading to five changes to the SSE STAR50 (STAR50 INDEX) in September.
- One-Way turnover is estimated at 4.07% and will result in a one-way trade of CNY 2,265m. Passive trackers will need to trade between 1-5 days ADV on the adds/deletes.
- The adds have outperformed the deletes and the CSI500 Index since the end of the review period. We’d look to buy the adds and hedge with CSI500 Index futures.
Index Rebalance & ETF Flow Recap: FTSE AW/AC, CH 50/A50, STI, KLCI, TW 50/Div+, STAR50, EPRA Nareit
- It was a busy week with a lot of review cutoffs for the FTSE country indices and the announcement of the STAR50 INDEX changes for September.
- The coming week has the implementation of the JPXNK400, MSCI, HSI, HSCEI and HSTECH rebalances. Plus announcements of the changes to the FTSE, NIFTY and S&P/ASX indices.
- There were outflows from iShares MSCI All Country Asia ex-Japan ETF (AAXJ US), IShares Core MSCI Asia Ex Japan ETF (3010 HK) and KraneShares CSI China Internet ETF (KWEB US).
Last Week in Event SPACE: Toshiba, Swire Pacific, Ramsay Health, Pendal, Intouch
- Based on an admittedly somewhat finger-in-the-air estimate of probability of privatisation, shorting Toshiba Corp (6502 JP) here against its Peer Basket is probably not a good outcome.
- Swire Pacific (19 HK) has started buying back with 3.5x the average ADV impact on Bs vs As. That is likely to continue.
- KKR’s all cash A$88/share Offer for Ramsay Health (RHC AU) is off. The alternative Offer has a lower implied value, and has been unceremoniously rejected, despite Ramsay’s horrible FY22 numbers.
Ramsay and KKR’s Game of Cat and Mouse
- Ramsay Health Care (RHC AU) disclosed that the KKR & Co Inc (KKR US) consortium withdrew its indicative proposal but remains committed to the alternative proposal, which the Board earlier rejected.
- The alternative proposal, while inferior to the indicative proposal, is still attractive and better than the status quo of no deal. The Board will engage for an improved offer.
- The value gap between the parties is not huge, and a deal is possible. The upside (20% to alternative proposal) vs downside (-9% to undisturbed price) is worth a punt.
China Property Management: Lacking Independence
- As China’s property market melts down, shares of property management companies are following suit.
- And there are increasing governance issues attached to these management units as a slew of questionable parent/subsidiary transactions unfold.
- Valuations for property management companies are trading at multi-year lows. That trend is likely to continue.
KODEX FnGuide Battery ETF Rebalancing Checkup
- I recommend focusing on the ceiling regression play. In this regard, SK Innovation has the most notable regression spread, and we should use Samsung SDI as a hedge against it.
- As for constituent change, SungEel HiTech is firmly positioned with a market cap of ₩1.34T and a float rate of 50%. And it belongs to the Waste batteries keyword.
- But, it is unclear whether SungEel will be in the top 25 in scoring. We should patiently wait until confirmation as it’s still a worthy candidate requiring our attention.
(Mostly) Asia-Pac Weekly Risk Arb Wrap: Ramsay Health, Pendal, Nearmap, Xiamen Port, PTB Group, MACA
- There are 49 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
- Two new deals were discussed this week: PTB Group Ltd (PTB AU)‘s and Bright Scholar Education (BEDU US).
- Key updates took place for Ramsay Health Care (RHC AU), Pendal Group (PDL AU), Nearmap Ltd (NEA AU), Xiamen International Port H (3378 HK), andMACA Ltd (MLD AU).
ECM Weekly (28th Aug 2022) – China Tourism, BA REIT, Hongjiu Fruit, YH Ent, Biocyto, WM, APM, Daiwa
- Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
- On the IPO front, China Tourism’s listing appears to have set the ball rolling for others to follow.
- After a flurry of activity in the prior week, there weren’t any major placements this week.
Merger Arb Mondays (29 Aug) – Ramsay, DTAC/True, Pendal, Link Admin, Ramsay, Infomedia, ResApp, MACA
- We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Indonesia, Malaysia, Thailand and Chinese ADRs.
- Highest spreads – 21Vianet Group (VNET US), Alliance Aviation Services (AQZ AU), Infomedia Ltd (IFM AU), Ramsay Health Care (RHC AU), Resapp Health (RAP AU), True Corp Pcl (TRUE TB).
- Lowest spreads MACA Ltd (MLD AU), Nearmap Ltd (NEA AU), Dongzheng Automotive Finance (2718 HK), Excelpoint Technology (EXLP SP), MyDeal.com.au Ltd (MYD AU), China Vast Industrial Urban Development (6166 HK)
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