In today’s briefing:
- MSCI Nov 2022 SAIR: In-Line; Plus a Few Surprises
- FTSE All-World/All-Cap Index Rebalance Preview: Potential Inclusions & Lock-Up Expiry
- Index Rebalance & ETF Flow Recap: MSCI STD, Jardine C&C, Golden Agri, Delhivery, Origin Energy
- Wharf Holdings (4 HK): MSCI Deletion, Short Interest & Trade Ideas
- Merger Arb Mondays (14 Nov) – Golden Energy, Perpetual/Pendal, Origin Energy, Warrego, Uzabase
- Sumitomo Precision Products (6355) Buyout by Sumitomo Corp – Likely To Get Done
- Softbank Group (9984 JP) –Vision and LatAm Funds Take Another USD10bn Valuation Hit in 2Q 22
- Warrego Enters Into A Scheme With Beach
- HSCI Index Rebalance and Stock Connect: Changes at the Margins
- Nearmap (NEA AU)’s Update Results in an Unwarranted Increase in the Spread
MSCI Nov 2022 SAIR: In-Line; Plus a Few Surprises
- MSCI announced the changes as part of the November SAIR. For Asia Pacific, there are 48 adds and 55 deletes (including one nationality change).
- The deletion of Wharf Holdings (4 HK) is the biggest surprise. The stock should trade weak given the large flow and days of ADV to sell.
- There are listing changes for BeiGene (BGNE US), Li Auto (LI US), Xpeng (XPEV US) and Hutchison China MediTech Ltd (HCM US) to their Hong Kong listed lines.
FTSE All-World/All-Cap Index Rebalance Preview: Potential Inclusions & Lock-Up Expiry
- We see 4 potential adds, 1 close add and 1 potential delete for the FTSE All-World/All-Cap indices at the upcoming QIR that will be implemented at close on 16 December.
- The largest impact will be the passive selling on Golden Agri Resources (GGR SP) due to a nationality change from Singapore to Ineligible.
- There is a big lock-up expiry on Delhivery where US$2.89bn of shares will be free for trading on 21 November – that is significantly larger than the potential passive buying.
Index Rebalance & ETF Flow Recap: MSCI STD, Jardine C&C, Golden Agri, Delhivery, Origin Energy
- On Friday, MSCI announced the changes to its indices as part of the November SAIR. Most changes were expected, but there were a few surprises.
- Friday was also the review cutoff for the FTSE Dec QIR. Next Friday has announcement of changes to the Hang Seng, Sensex and FTSE indices.
- Big inflow to iShares Core MSCI Emerging Markets ETF (IEMG US) during the week as inflows to IShares Edge MSCI Min Vol Emerging Markets ETF (EEMV US) continue.
Wharf Holdings (4 HK): MSCI Deletion, Short Interest & Trade Ideas
- In a surprise, MSCI announced the deletion of Wharf Holdings (4 HK) from the MSCI China Index at the November SAIR that will be implemented at the close 30 November.
- The stock dropped 14.3% on Friday as volume spiked 26x compared to ADV and 14m shares were shorted on the day.
- Total short interest is estimated to be significantly lower than the estimated selling from passive MSCI trackers and there could be a move lower over the next few days.
Merger Arb Mondays (14 Nov) – Golden Energy, Perpetual/Pendal, Origin Energy, Warrego, Uzabase
- We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
- Highest spreads Pendal Group (PDL AU), Alliance Aviation Services (AQZ AU), Genex Power Ltd (GNX AU), 21Vianet Group (VNET US), 111 Inc (YI US), Golden Energy & Resources (GER SP).
- Lowest spreads – Tyro Payments (TYR AU),Perpetual Ltd (PPT AU), OZ Minerals Ltd (OZL AU), Nitro Software Ltd (NTO AU), China Vast Industrial Urban Development (6166 HK), Moya Holdings.
Sumitomo Precision Products (6355) Buyout by Sumitomo Corp – Likely To Get Done
- On Friday, Sumitomo Corp (8053 JP) announced a bid for equity affiliate (they own 27+% but Nippon Steel 15%, top 2 is 40+%) Sumitomo Precision Products (6355 JP).
- It’s a one-year high and 4-year high price, and 8x average 10yr EV/EBITDA but 4.6x 2024e EBITDA from the Mid Term Plan. And way below a 10-year high.
- This gets done if Retail agrees to the tender. If 50% put in, that should do it. So I expect this gets done.
Softbank Group (9984 JP) –Vision and LatAm Funds Take Another USD10bn Valuation Hit in 2Q 22
- Headline 2QFY22 results for Softbank Group were in the black, largely due to the Alibaba stake sale, but the group’s three funds registered an aggregate USD10bn of valuation losses
- FTX’s write-down to zero will cost Softbank’s Vision Fund 2 USD100m in 3Q22, our main concern is what the VC funding downturn means for portfolio valuations in the coming quarter
- The group’s NAV discount has now tightened meaningfully; we believe that this makes it less advantageous for management to announce another share buy-back programme
Warrego Enters Into A Scheme With Beach
- The Stokes’ family-backed Beach Energy (BPT AU) is offering Warrego Energy (WGO AU)‘s shareholders $0.20/share, in cash, by way of a Scheme. That’s a 36% premium to the one-month VWAP.
- A contingent value payment may be payable to Warrego shareholders from the sale of Warrego’s Spanish assets within 12 months
- Warrego’s board unanimously recommend the Beach deal. The transaction is expected to complete in early March. The wild card is whether Strike Energy (STX AU) pitches a revised Offer.
HSCI Index Rebalance and Stock Connect: Changes at the Margins
- We see 3 potential adds for the HSCI in December. We also see 26 potential adds and 16 potential deletes for the index in March.
- Following the March rebalance, we see 22 potential inclusions to Stock Connect while we expect 37 stocks to be removed from the link.
- Some of the potential deletions/ Stock Connect drops have large Southbound holdings and some of these positions could be pared back over the next few months.
Nearmap (NEA AU)’s Update Results in an Unwarranted Increase in the Spread
- Nearmap Ltd (NEA AU)’s litigation and trading update resulted in the spread to Thoma Bravo’s A$2.10 offer widening to 7.7%. The scheme meeting is on 25 November.
- There is no chance that the MAC clause will be triggered due to the downbeat trading update. However, the update is softening the stance of some of the retail dissenters.
- There is a small chance of a bump as peers have re-rated. Nevertheless, the low spread prior to the update suggested that the risk of the NO vote was minimal.
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