In today’s briefing:
- China TCM (570.HK) Privatization Update – The Long Stop Date to Extend or Not?
- Horizon Robotics (9660 HK) IPO: Index Inclusion Possibility & Timelines
- Japan: Potential Passive Selling in November
- Taiwan Dual-Listings Monitor: TSMC Premium Holding Up; ASE & CHT See Sharp Drops
- China Traditional Chinese Medicine (570 HK): Theatre of the Absurd
- Scenario Analysis of Korea Zinc’s Share Buyback, Cancellation, and Tender Offer + NPS’s Five Options
- 7&I Holdings (3382 JP) – Artisan Writes Another Letter – Based on Content, They Should Sell Any Pop
- CSI 500 Index Rebalance Preview: 50 Changes; 11% Turnover; US$5bn Round-Trip Trade
- GJS/Haitong Merger Musings
- Clean Energy & Global Water ETFs: Changes for Asia & Impact
China TCM (570.HK) Privatization Update – The Long Stop Date to Extend or Not?
- Investors are concerned the Long Stop Date may be extended.But the style of SOEs is rigorous, which means CNPGC has anticipated the potential delays and reserved more time in advance.
- Although CNPGC can extend Long Stop Date, this indicates CNPGC fails to complete the set work in scheduled time, which is equivalent to admitting its previous work arrangement was “inappropriate”.
- If there’re unexpected circumstances, one possible scenario is privatization would be completed before the Chinese New Year.Because entering 2025, integrating China TCM and Taiji will be the focus of CNPGC.
Horizon Robotics (9660 HK) IPO: Index Inclusion Possibility & Timelines
- Horizon Robotics (1395186D CH) is offering 1.355bn shares in its IPO at a price range of HK$3.73-3.99/share. With the overallotment option, the IPO could raise up to HK$6.2bn (US$801m).
- Cornerstone investors will take up a third of the offer. Those shares will be locked up for 6 months and will significantly reduce the free float of the stock.
- Index inclusions will commence with the HSCI in March 2025 – however, as a stock with Weighted Voting Rights, inclusion in Southbound Stock Connect will only take place in May.
Japan: Potential Passive Selling in November
- Up to 9 stocks could be deleted from global passive portfolios in November. The deletion will lead to liquidity events where trackers will need to sell multiple days of ADV.
- There has been a buildup of shorts on nearly all these stocks though the extent of the pre-positioning varies.
- The increase in shorts is smaller than the estimated passive selling, though there is a fair amount of variability across the names.
Taiwan Dual-Listings Monitor: TSMC Premium Holding Up; ASE & CHT See Sharp Drops
- TSMC: +15.6% Premium; Relatively Aggressive Trade is to Long Premium
- ASE: -3.0% Discount; Good Level to Go Long the Premium
- CHT: -2.8% Discount; Good Level to Go Long the Premium
China Traditional Chinese Medicine (570 HK): Theatre of the Absurd
- China Traditional Chinese Medicine (570 HK)’s monthly update notes that the consortium has secured SAMR approval and made progress in obtaining the other regulatory approvals.
- As expected, the precondition will not be satisfied before the 18 October long stop date. Unexpectedly, whether the consortium members will consent to the extension remains uncertain.
- The extension will be forthcoming as the delay is procedural, there is a reputational risk from a deal break, the time investment is significant, and the warning was legally required.
Scenario Analysis of Korea Zinc’s Share Buyback, Cancellation, and Tender Offer + NPS’s Five Options
- We discuss the next steps in the fight for the control of Korea Zinc, after the completion of the tender offer by the MBK Partners and Young Poong alliance.
- After the tender offer, MBK and Young Poong’s stake in Korea Zinc increased from 33.13% to 38.47%, coming close to more than half of the voting rights.
- We continue to believe that at current stage, MBK/Young Poong alliance has the advantage in the fight for the control of Korea Zinc.
7&I Holdings (3382 JP) – Artisan Writes Another Letter – Based on Content, They Should Sell Any Pop
- Some two weeks after it became apparent Alimentation Couche-Tard (ATD CN) had lobbied a bid in for Seven & I Holdings (3382 JP), Artisan Partners wrote a letter.
- It was full of misguided analysis, ungrounded insinuation of a general nature without specifying where they would have a problem. It seemed to be complaint for the sake of complaint.
- Today another public letter. This time there are a couple of worthwhile suggestions, some accusations of fiduciary impropriety based on no evidence, and an implicit admission they should have sold?
CSI 500 Index Rebalance Preview: 50 Changes; 11% Turnover; US$5bn Round-Trip Trade
- With 95% of the review period now complete, we forecast 50 changes (the maximum permitted) for the CSI Smallcap 500 Index at the close on 13 December.
- We estimate a one-way turnover of 11% at the rebalance resulting in a one-way trade of CNY17.56bn (US$2.48bn). The Information Technology and HealthCare sectors gain at the expense of Industrials.
- After drifting lower over the last couple of months, the forecast adds have outperformed the forecast deletes over the last couple of weeks. There should be more to go here.
GJS/Haitong Merger Musings
- Back in March, the CSRC said it aimed to “form two to three investment banks and institutions with international competitiveness and market leadership by 2035″.
- Last week’s announced merger between China’s leading state-backed brokerages, Guotai Junan Securities (2611 HK) and Haitong (6837 HK), is a move in that direction. Expect more scrip mergers to follow.
- There have also been some media reports that the GJS/Haitong terms disadvantage holders of other Hong Kong broker stocks if potentially acquired in a merger. It’s not quite that simple.
Clean Energy & Global Water ETFs: Changes for Asia & Impact
- There are 3 adds and 2 deletes for the iSharesGlobal Clean Energy ETF while there are 2 adds and 2 deletes for the iShares Global Water UCITS ETF.
- With US$5bn benchmarked to the iSharesGlobal Clean Energy and related ETFs, and US$3.5bn benchmarked to the iShares Global Water and related ETFs, there is multiple days of ADV to trade.
- We see a noticeable rise in cumulative excess volume over the last two trading sessions, so there will be positioning in the stocks.
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