In today’s briefing:
- Hang Seng Index Rebalance Preview: 80 Member Target Achieved; What Next?
- HSCEI Index Rebalance Preview: Deletions Fairly Certain; Uncertainty Among the Adds
- Nikkei 225 Methodology Change. Again. This Time Better But Still Not Good Enough
- Celltrion Merger: Index Implications
- Celltrion Merger Swap: Conditions & Schedule
- NIFTY NEXT50 Index Rebalance: Five Changes; Big Impact; Cross Index Flow
- Celltrion (068270 KS) Merger with Celltrion Healthcare (091990 KS)
- Celltrion Inc/Healthcare Merger. Pharm Is Next
- Merger Between Celltrion Inc and Celltrion Healthcare (Phase I First)
- Rakuten Securities IPO: Japan Optimism and Fractional Trading Boost Revenue Amid Stable Costs
Hang Seng Index Rebalance Preview: 80 Member Target Achieved; What Next?
- We finally got to 80 Hang Seng Index constituents in June. Now comes the next step of moving up to 100 index constituents though there is no timeline for completion.
- The conclusions of the market consultation on the inclusion of foreign stocks in the Hang Seng Index should be announced soon though implementation could start only in December.
- We highlight 10 potential inclusions to the index with passive trading impact varying from 1.5-5.6 days of ADV. There are large shorts on some of the stocks.
HSCEI Index Rebalance Preview: Deletions Fairly Certain; Uncertainty Among the Adds
- Country Garden Services Holdings (6098 HK) and Zhongsheng Group (881 HK) are high probability deletions in September, while Trip.com (9961 HK) is a high probability inclusion.
- The second add could be BeiGene Ltd (6160 HK) if it passes the velocity test. If not, Chow Tai Fook Jewellery (1929 HK) will be added.
- With the exception of Zhongsheng Group (881 HK), short interest has been rising on all the other stocks and could affect how the stocks trade close to implementation date.
Nikkei 225 Methodology Change. Again. This Time Better But Still Not Good Enough
- The Nikkei Index Team has suggested a methodology change to the Nikkei 225 Average.
- It involves capping stocks, creating a method for re-weighting once capped then stocks fall, and they recommend changing to a semi-annual Periodic Review – twice a year rather than once.
- More interestingly, they also change the “High Liquidity” definition to be related to traded value not volume, which starts to favour higher-market cap stocks with more shares out.
Celltrion Merger: Index Implications
- Celltrion Inc (068270 KS) and Celltrion Healthcare (091990 KS) will merge later this year. Celltrion Pharm (068760 KS) has been left out for now; it could be merged next year.
- For each share of Celltrion Healthcare (091990 KS) held, shareholders will receive 0.449262 shares of Celltrion Inc (068270 KS).
- There will be implications for the Korea Stock Exchange Kospi Index (KOSPI INDEX) and KOSDAQ 150 Index (KOSDQ150 INDEX) with funding flows and index replacements.
Celltrion Merger Swap: Conditions & Schedule
- The swap prices, ₩148,853 for Celltrion Inc and ₩66,874 for Celltrion Healthcare, specified below are not tentative prices but confirmed prices. So, the merger ratio has been determined as 1:0.4492620.
- The key focus now is the appraisal rights exercise. Both offer attractive spreads. Yet, the ₩1T combined ceiling might seem restricted considering potential dissenting Celltrion Inc shareholders exceeding expectations.
- Nonetheless, considering the strong determination of the company towards this merger, we should consider a strategy of approaching this spread aggressively while keeping the cancellation risk in mind.
NIFTY NEXT50 Index Rebalance: Five Changes; Big Impact; Cross Index Flow
- NSE Indices has continued to use the current index methodology to come up with the 5 adds/deletes. The proposed methodology seems to be put on ice for reasons unknown.
- Punjab National Bank, Shriram Transport Finance, Trent, TVS Motor and Zydus Lifesciences will replace ACC, FSN E-Commerce Ventures, HDFC Asset Management, Indus Towers and Page Industries.
- The adds, deletes, capping and funding changes will result in one-way turnover of 13% and in a one-way trade of INR 20.77bn. The impact on the adds/deletes is big.
Celltrion (068270 KS) Merger with Celltrion Healthcare (091990 KS)
- Celltrion Inc (068270 KS) will merger with Celltrion Healthcare (091990 KS). Celltrion Healthcare shareholders will receive 0.4492620 Celltrion shares per Celltrion Healthcare share.
- The merger requires shareholder (approval by at least two-thirds of the votes of the shareholders present representing at least one-third of the outstanding shares) and Fair Trade Commission approval.
- The merger ratio, based on regulations, is attractive compared to historical VWAP exchange ratios and multiples. At last close prices, Celltrion Healthcare shares are trading broadly at terms.
Celltrion Inc/Healthcare Merger. Pharm Is Next
- It’s finally happening: biopharmaceuticals developer and producer Celltrion Inc (068270 KS) will acquire Celltrion Healthcare (091990 KS).
- Inc will issue 0.4492620 new shares for each share in Healthcare. The swap prices of ₩148,853 for Inc and ₩66,874 for Healthcare are firm.
- Celltrion Pharm (068760 KS) is excluded from the original three-way merger plan, but is expected to be merged with the enlarged Inc/Healthcare entity around July 2024.
Merger Between Celltrion Inc and Celltrion Healthcare (Phase I First)
- On 17 August, Celltrion Inc announced that it will merge with Celltrion Healthcare. The merger ratio is 0.449262 Celltrion Inc share for each share of Celltrion Healthcare.
- There was a negative surprise which was that Celltrion Pharm will not be included as part of the three companies merger which has been promised in the past several years.
- Overall, we believe that this merger will have a positive impact on Celltrion Inc and Celltrion Healthcare’s share prices.
Rakuten Securities IPO: Japan Optimism and Fractional Trading Boost Revenue Amid Stable Costs
- Rakuten Group (4755 JP) announced last month that its consolidated subsidiary, Rakuten Securities (RAKUSEC JP), has applied for a listing on the Tokyo Stock Exchange.
- In the last eight quarters, the Securities business has experienced more than 100% profit growth, thanks to linear revenue growth while costs remained relatively stable.
- The previous private market valuation of ¥400bn implies a PE ratio of 15.0x, assuming the company maintains its current 2Q23 profitability level.
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