In today’s briefing:
- China TCM (570.HK) Privatization Update – Investors May Need to Prepare for a Longer Wait
- TCM (570 HK): Where’s The Floor?
- MMG (1208 HK) Rights Trading Dynamics
- Big Aisin (7259) Offering Sets Stage for First Toyota Group Full Unwind
- Aisin (7259 JP): A US$1.1 Billion Secondary Offering
- Brilliance China (1114 HK): Reversing Out of Passive Portfolios
- Initial Thoughts on LG Electronics India IPO
- SK Square + SK Networks Merger Swap: A Guide to Pre-Merger Arb Spread Calculations
- Emcure Pharmaceuticals Pre-IPO: IPO Price Band Set; Steep Valuation Offers Limited Upside Potential
- Bank Rakyat Indonesia (BBRI IJ) – Special Mention on the Turn
China TCM (570.HK) Privatization Update – Investors May Need to Prepare for a Longer Wait
- The approval/filing process of China TCM’s privatization is complicated and would take some time, but there’re almost no cases of disapproval. It also depends on the adequacy of materials submitted.
- Due to the extension of time for the despatch of Scheme Document, this process would be delayed for more months.But we should receive clear information by October at the latest.
- For arbitrageurs, China TCM is an investment opportunity of high success rate, which becomes more attractive if HK stock market is depressed.It’s better suited to idle funds considering potential risks/returns.
TCM (570 HK): Where’s The Floor?
- Just plain ugly. China Traditional Chinese Medicine (570 HK) (“TCM”) fell 11.7% yesterday. It’s down another 7.9%, on large volume, as I type. The stock is now ~35% below terms
- Depending on who you talk to, the sudden move was triggered by a couple of event pods dumping stock; or the incoming CNPGC chairman is not supportive. Or perhaps both.
- Since rumours surfaced early Feb as to an Offer, a basket of TCM’s peers are up 8% on average. The HSI is up 15%. TCM’s downside from here appears limited.
MMG (1208 HK) Rights Trading Dynamics
- The MMG (1208 HK) rights, designed to raise US$1.15bn to pay off loans to the parent for the purchase of a large copper asset, start trading 24 June 2024.
- There is some risk up for grabs, and it is likely to trade according to standard Hong Kong Rights Trading Dynamics. Shorts are down somewhat, but covering should be expected.
- There is path-dependency to the Rights Trading, and while they trade for 7 trading days through Tuesday next, one should expect the volume to trade this week.
Big Aisin (7259) Offering Sets Stage for First Toyota Group Full Unwind
- Today (27 June 2024) after the close, Aisin (7259 JP) announced three Toyota Group companies (Toyota, Toyota Industries, and Denso) would sell shares in Aisin in a ¥180bn offering.
- This is ALL of Denso’s holdings, 63% of Toyota Industries stake, and ~12% of Toyota’s stake. Separately, Aisin announced a 17mm share (6.3%) ¥100bn buyback and a 3:1 split Oct1.
- The recent yuho shows us the progress of Aisin’s promised selldown of crossholdings. There are three large chunks left. One is easy. The climb to capital allocation credibility easier too.
Aisin (7259 JP): A US$1.1 Billion Secondary Offering
- Aisin (7259 JP) has announced a secondary offering of up to 38.9 million shares (including overallotment) and a buyback worth a maximum of JPY100 billion or 17 million shares.
- Denso Corp (6902 JP), Toyota Industries (6201 JP), and Toyota Motor (7203 JP) are the selling shareholders. The offering aims to reconfigure the company’s shareholder mix and reduce cross-shareholdings.
- Looking at recent large Japanese placements is instructive for understanding the potential offer price. The pricing date will fall between 8 and 10 July (likely 8 July).
Brilliance China (1114 HK): Reversing Out of Passive Portfolios
- Brilliance China Automotive (1114 HK) is up 220% on a total return basis since we first published our insight in August 2023.
- The company paid a special dividend in April this year and will pay a large special dividend of HK$4.3/share going ex-div on 3 July.
- The resultant drop in market cap will result in deletion of the stock from large global passive portfolios at the close on 3 July.
Initial Thoughts on LG Electronics India IPO
- According to local media, LG Electronics is reviewing for a potential IPO of LG Electronics India. LG Electronics has approached JP Morgan and Morgan Stanley to be potential IPO underwriters.
- If LG Electronics’ Indian subsidiary is listed, it is expected to be able to raise at least $500 million from the stock market.
- Post IPO, the market value of LG Electronics India is estimated to be between $2.1 billion (3 trillion won) and $4.3 billion (6 trillion won).
SK Square + SK Networks Merger Swap: A Guide to Pre-Merger Arb Spread Calculations
- SK Square’s market cap exceeds SK Networks’ by over 10 times, qualifying this merger as small-scale. Thus, only SK Networks needs shareholder approval and grants appraisal rights solely to shareholders.
- The current arbitrage spread for SK Networks’ appraisal rights is 1.95%, and for the swap, it’s 4.16%. These are nominal values excluding trading costs and taxes.
- Today’s SK Square and SK Networks prices reflect arbitrage spreads. Yesterday’s 8% spread widened, focusing on narrowing appraisal rights and swap spreads, essential before next week’s announcement.
Emcure Pharmaceuticals Pre-IPO: IPO Price Band Set; Steep Valuation Offers Limited Upside Potential
- Emcure Pharmaceuticals seeks to raise INR19.5B in upcoming IPO through a fresh issue of INR8B and an OFS of 11.4M shares. IPO price band has been set at INR960–1,008.
- The issue will open for subscription on July 3 and close on July 5. Bidding for anchor investors will open on July 2. Lot size for bidding is 14 shares.
- IPO proceeds will be used to repay debt. As at March 31, 2024, the company’s outstanding borrowings stood at INR21B against cash balance of INR2B.
Bank Rakyat Indonesia (BBRI IJ) – Special Mention on the Turn
- Bank Rakyat Indonesia (BBRI IJ) have seen a significant correction on the back of concerns over credit quality, as provisions increased in 1Q2024, the bank addressed its problem micro-loans
- The bank is addressing these loans with some further provisions likely over the coming quarter but special mention loans should plateau in July signifying a turn.
- Bank Rakyat Indonesia will slow micro-lending and grow corporate loans this year to address the cost of credit. Profits will likely be flat and dividend payout up. Valuations are attractive.
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