In today’s briefing:
- Nomura Real Estate To Buy Nomura RE Master Fund Units
- KDDI (9433) – Own Share Tender Offer, Toyota To Sell (Gasp!)
- KOSDAQ150 Ad Hoc Index Rebalance: Hydro Lithium (101670) Could Replace Nice Information (030190)
- Finally, Korea Launches English Search Service for All Disclosures Starting July 31st
- Index Rebalance & ETF Flow Recap: LQ45/IDX30, FXI, New Deal, KOSPI, KQ150, LG Energy, IN Float, TTMT
- NIFTY/NEXT50 Index Rebalance Preview: Loads of Changes if Proposed Methodology Is Implemented
- JSR Corporation (4185 JP): Tender Offer Risk/Reward
- Merger Arb Mondays (31 Jul) – Eoflow, JSR, Toshiba, Pacific Current, Costa, Estia, Newcrest, Dali
- STAR50 Index Rebalance Preview: Potential Changes Playing Catchup
- OCI Swap Arbitrage: A Bit More Complex Structure, Still Juicy Spread in Play
Nomura Real Estate To Buy Nomura RE Master Fund Units
- Today, Nomura Real Estate Master Fund, (3462 JP) – the largest REIT in the ‘Diversified REIT’ JREIT space – announced sponsor Nomura Real Estate (3231 JP) would up its stake.
- They would lift their stake from 4.47% by 2.54% to 7.01%. There is a reason for this, just like there was last time with Japan Excellent (8987 JP).
- Understanding the reason is how you understand the trade to do.
KDDI (9433) – Own Share Tender Offer, Toyota To Sell (Gasp!)
- Today, with Q1 earnings, which I found less than great, KDDI Corp (9433 JP) announced a Tender Offer Buyback to repurchase up to 64,102,500 shares for up to ¥250.03175bn.
- The Tender Offer – at ¥3900/share vs Last at ¥4,271/share (designed for cross-holding unwinds) – goes from 31-July through 28-August. It fills the 83.3% of the buyback programme announced 11-May.
- Toyota Motor (7203 JP) has announced it would sell ¥250bn of shares into this Tender Offer. This is less interesting than it looks. The whole thing is.
KOSDAQ150 Ad Hoc Index Rebalance: Hydro Lithium (101670) Could Replace Nice Information (030190)
- The KRX has approved Nice Information Service Co (030190 KS)‘s transfer from the KOSDAQ Board to the KOSPI Board. The transfer could take place in the next two weeks.
- Hydro Lithium (101670 KS) was the highest ranked non-constituent from the Industrials sector at the June rebalance and could replace Nice Information Service (030190 KS) in the KOSDAQ 150 Index.
- Nice Information Service Co (030190 KS) has no chance of inclusion in the Korea Stock Exchange KOSPI 200 (KOSPI2 INDEX) and will not be short sell eligible post section transfer.
Finally, Korea Launches English Search Service for All Disclosures Starting July 31st
- Starting Monday, July 31st, the FSS-operated disclosure website, DART (Data Analysis, Retrieval, and Transfer System), will provide an English search service for all disclosures.
- This measure will open up possibilities for diverse position strategies that require timeliness and comparability for Korean local stocks, leading to a significant turning point.
- This calls for a more comprehensive approach in identifying the overall market flow. We should be attentive to potential alterations in the structure of foreign flows.
Index Rebalance & ETF Flow Recap: LQ45/IDX30, FXI, New Deal, KOSPI, KQ150, LG Energy, IN Float, TTMT
- The changes to the LQ45/IDX30 were announced last week and will be implemented Monday. The PSE also announced that there would be no changes for the PCOMP INDEX in August.
- There are a bunch of review cutoffs on Monday, most notably for the Nikkei 225 (NKY INDEX), STAR50 INDEX, the NIFTY family of indices and the KRX New Deal indices.
- There were inflows to China focused ETFs and outflows from Taiwan and Korea focused ETFs during the week.
NIFTY/NEXT50 Index Rebalance Preview: Loads of Changes if Proposed Methodology Is Implemented
- Using the current index methodology throws up 5 changes for the NSE Nifty Next 50 Index (NIFTYJR INDEX) in September. Turnover will be BIG.
- Using the proposed index methodology throws up 11 changes for the NSE Nifty Next 50 Index (NIFTYJR INDEX) in September. Turnover will be HUGE.
- The market consultation being put on hold could indicate pushback from index users or the possibility of F&O contracts being introduced on some of the non-F&O index constituents.
JSR Corporation (4185 JP): Tender Offer Risk/Reward
- JSR Corp (4185 JP)‘s pre-conditional tender offer from JIC is JPY4,350 per share. Since the deal announcement on 26 June, the gross spread has averaged 6.4%.
- The wide gross spread reflects the risk in satisfying the pre-conditions related to country approvals, particularly in China. JIC, unusually can waive all or part of the conditions precedent.
- The wild card is geopolitical developments. There are three China approval scenarios. The likely scenario is the deal approval under a normal procedure with a delay to the tender start.
Merger Arb Mondays (31 Jul) – Eoflow, JSR, Toshiba, Pacific Current, Costa, Estia, Newcrest, Dali
- We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
- Highest spreads – 111 Inc (YI US), Chindata Group (CD US), Estia Health (EHE AU), ENM Holdings (128 HK), JSR Corp (4185 JP), Costa Group Holdings (CGC AU).
- Lowest spreads – Healius (HLS AU), Liontown Resources (LTR AU), Toyo Construction (1890 JP), Penguin International (PBS SP), Kenedix Retail REIT (3453 JP), ARTERIA Networks Corp (4423 JP).
STAR50 Index Rebalance Preview: Potential Changes Playing Catchup
- The review period for the September rebalance ends today. The changes could be announced on 25 August with the implementation taking place after the close on 8 September.
- The upcoming launch of the STAR100 Index could result in the index committee continuing to use a 6-month minimum listing history resulting in two changes to the index.
- One way turnover is estimated at 2.3% resulting in a one-way trade of CNY 2,658m. The impact on the deletions will be much larger than that on the inclusions.
OCI Swap Arbitrage: A Bit More Complex Structure, Still Juicy Spread in Play
- This is a classic swap arbitrage of shorting the acquirer and using the tendered shares to repay it. However, executing now would be meaningless as the swap ratio isn’t finalized.
- Nevertheless, we should consider securing a long position in OCI Holdings in advance. The target (45%) is quite substantial, indicating that the practical allocation rate won’t plummet dangerously below 1.
- Additionally, the likelihood of OCI Holdings’ swap price plummeting to completely nullify the 5.6% spread immediately after its determination appears to be low based on the current context.
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