In today’s briefing:
- FTSE TWSE Taiwan Div+ Index: Recent Performance & Potential Trades
- China Huarong (2799 HK): Full Circulation & MSCI/FTSE Index Inclusion
- SET50 Index Rebalance Preview: Four Potential Changes in December
- GoTo IPO Lockup Expiry – US$13bn Lockup Release or in Other Words, the Real IPO
- Disaster As VTOs Cancelled Under DTAC/True Merger
- A Guide to Arb Trade in Rights Offer: Feat. HLB & Lotte Chemical
- Alibaba (BABA US): Fighting Back
- Keppel (KEP SP) Vote on Keppel O&M and Sembcorp Marine Transaction on 8 Dec
- Mori Trust Sogo – Mori Trust Hotel REIT Merger
- Nikkei 225 Index Rebalance Preview (March): Three Potential Changes & Large Funding Trade
FTSE TWSE Taiwan Div+ Index: Recent Performance & Potential Trades
- The review period for the FTSE TWSE Taiwan Dividend+ index ended Monday, 21 November. We forecast 26 adds/ 5 deletes in December – the flows are huge.
- Stocks with potential inflows have outperformed stocks with potential outflows over multiple time periods going back a month. Yesterday was an especially good day for the strategy.
- We expect continued pre-positioning ahead of the passive flows will help the stocks with inflows outperform stocks with outflows. A reversal of performance could come post implementation.
China Huarong (2799 HK): Full Circulation & MSCI/FTSE Index Inclusion
- China Huarong Asset Management (2799 HK) has announced the full conversion of 8.358bn Domestic Shares to H-shares. The increased float could help the stock get added to the MSCI/FTSE indices.
- Depending on when the conversion is completed, the stock could be added to the MSCI China Index at the February QCIR though inclusion in May is more likely.
- There is a high probability of inclusion in the FTSE indices at the March SAIR – though it remains to be seen if that’s to the All-World or All-Cap Index.
SET50 Index Rebalance Preview: Four Potential Changes in December
- The market cap review period for the December rebalance of the Stock Exchange of Thailand SET 50 Index (SET50 INDEX) ends in 6 trading days.
- Following the market consultation and reduction in the turnover ratio, there could be four changes to the index. The DTAC/TRUE merger could result in another inclusion in Q1 2023.
- Estimated one-way turnover at the December rebalance is 8.1% and will result in a one-way trade of THB 7.4bn. More than 1x ADV to trade on most stocks.
GoTo IPO Lockup Expiry – US$13bn Lockup Release or in Other Words, the Real IPO
- In Mar 2022, GoTo raised around US$1bn from what was essentially a domestic Indonesian IPO. Its pre-IPO shareholders will be released from their lockup soon.
- GoTo was formed in May 2021 as a result of a merger between two of Indonesia’s largest unicorns Gojek, leading player in ride hailing, and Tokopedia, leading e-commerce player.
- In this note, we will talk about the upcoming lockup expiry.
Disaster As VTOs Cancelled Under DTAC/True Merger
- “The conditions precedent to the VTO have not been satisfied within one year from 22 November 2021 … the parties have declined to carry out the VTO.“
- This statement was lifted from Telenor’s (the major shareholder of Total Access Communication (DTAC TB)) brief announcement. Telenor/CP Group aim to complete the transaction within the first quarter of 2023
- This appears a cop-out on behalf of both Tender Offerors (Telenor & CP Group), who probably could have pushed for an extension. And why weren’t the scrip terms addressed?
A Guide to Arb Trade in Rights Offer: Feat. HLB & Lotte Chemical
- This post will specifically examine arb trade opportunities during the subscription rights trading period, with the recent HLB and Lotte Chemical cases.
- HLB gave an arb yield of 8%. As for Lotte Chemical, the size (₩1.1T) is much bigger, and it carries single-stock futures, a powerful incentive for arb traders.
- Another thing for Lotte Chemical is that it is unclear whether the major shareholders will participate in the subscription, which can lead to a widening of our arb spread.
Alibaba (BABA US): Fighting Back
- Ownership in Alibaba Group Holdings is on the rise among active Greater China managers.
- Stock price below $100 a catalyst for active Greater China managers to buy back in, with Invesco, JP Morgan and E Fund among those opening positions
- Alibaba remains well behind both TSMC and Tencent on an average weight basis and is the 2nd largest underweight in the Greater China region.
Keppel (KEP SP) Vote on Keppel O&M and Sembcorp Marine Transaction on 8 Dec
- Keppel Corp (KEP SP)’s EGM on 8 December requires majority shareholder approval of two ordinary resolutions. The IFA notes that the transaction terms are “not prejudicial” to minorities.
- Keppel shareholders will be supportive due to attractive terms. The other key conditions precedent is Sembcorp Marine (SMM SP) shareholders and regulatory approvals (SGX-ST and Maritime Port Authority of Singapore).
- The deal is expected to close by the end of the year. Our Keppel SoTP valuation is S$8.30 per share, which is 12% above the last close.
Mori Trust Sogo – Mori Trust Hotel REIT Merger
- Yesterday, Mori Trust Sogo Reit (8961 JP) (MTR) and Mori Trust Hotel Reit (3478 JP) (MTH) announced a merger to be effective 1 March 2023. MTR will be the survivor.
- The ratio is 1.00 : 0.92 MTR:MTH but MTR will conduct a 2:1 stock split on effective date to make it 1.00 : 1.84 to allow retail to continue holding.
- This will effectively increase the size of MTR by 35%, and re-distributes earnings structure. There will be index consequences.
Nikkei 225 Index Rebalance Preview (March): Three Potential Changes & Large Funding Trade
- With just over two months left in the review period, we expect three changes to the Nikkei 225 (NKY INDEX) at the March rebalance.
- Lasertec Corp (6920 JP), Oriental Land (4661 JP) and Renesas Electronics (6723 JP) could replace Toyobo Co Ltd (3101 JP), Nippon Light Metal (5703 JP) and Toho Zinc (5707 JP).
- As with the last rebalance, there will be a large funding trade estimated at JPY 417bn. There are many stocks with over 0.5x ADV to sell.
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