In today’s briefing:
- SBI Launches Opportunistic, Unfair Offer for Shinsei (8303) And Shinsei Board Drops the Ball
- HSI Index Rebalance: Yippee! Finally at 80!
- JAPAN BUYBACKS: A Very Big Week
- HSTECH Index Rebalance: Float & Capping Changes Lead to US$768m Two-Way Trade
- SBI Shinsei Bank (8303 JP): SBI’s Contentious JPY2,800 Tender Offer
- Yuexiu Property (123 HK): Rights Trade Playbook
- HSCEI Index Rebalance: China Shenhua (1088 HK) Replaces Country Garden (2007 HK); Div Impact
- Nikkei 225 Index Consultation Makes Things Weirder, but Still a 0️⃣🍔
- The Core of CFD Margin Call Risk May Lie in the JPM Counter, Not SG: Potentially Infected Names
- Merger Arb Mondays (15 May) – SBI Shinsei, Arteria, Toshiba, Yitai, Hailan, Allkem, Lian Beng
SBI Launches Opportunistic, Unfair Offer for Shinsei (8303) And Shinsei Board Drops the Ball
- After the large tender offer in late 2021, SBI was always going to try to take Shinsei Bank private. Now they have launched their deal at ¥2,800/share.
- That is below fair according to the Board, Special Committee, and implicitly to SBI. But the Shinsei Board has recommended shareholders tender so The Government will vote to squeeze out.
- I expect some upset, the possibility of some activism, but it all plays out in the back end in my opinion. Not the front end.
HSI Index Rebalance: Yippee! Finally at 80!
- The Hang Seng index committee has added four stocks to take the number of Hong Kong Hang Seng Index (HSI INDEX) constituents to 80. A year late, but we’re there!
- The next leg of the increase in the number of index constituents will take us up to 100. There is no timeline, so this should take a couple of years.
- Estimated one-way turnover is 2.93% leading to a one-way trade of HK$5.7bn (US$730m). All adds will have over 2x ADV to buy from passive trackers.
JAPAN BUYBACKS: A Very Big Week
- This past week, nearly 150 companies in Japan announced buyback programmes totalling ¥2.1trln. 3 Tenders, 26 ToSTNeT-3 buybacks (including at least 5 delayed starts).
- The median on-market buyback was 2.40% of shares, the average 2.9% (both measured as practical maxima at announcement. Median/Average % of ADV was 7.6/9.2%.
- My prediction that this will be a record year for stock buybacks still stands.
HSTECH Index Rebalance: Float & Capping Changes Lead to US$768m Two-Way Trade
- There are no constituent changes for the Hang Seng Tech Index (HSTECH INDEX) in June but there are some free float changes and a bunch of capping changes.
- Estimated one-way turnover is 3.2% leading to a one-way trade of HK$3bn (US$384m). There are 3 stocks with over 1 day of ADV to trade.
- Trip.com (9961 HK) has over 1x ADV to buy from Hang Seng Tech Index (HSTECH) trackers. The stock is also an add to the Hong Kong Hang Seng Index (HSI).
SBI Shinsei Bank (8303 JP): SBI’s Contentious JPY2,800 Tender Offer
- SBI Shinsei Bank (8303 JP) has recommended SBI Holdings (8473 JP)’s tender offer of JPY2,800 per share, a 12.6% premium to the undisturbed price (11 May).
- There is no minimum acceptance condition. SBI and irrevocables from government entities represent 73.02% of voting rights, ensuring the implementation of tender squeeze-out procedures.
- The special committee failed to unanimously recommend the offer. Minorities will feel short-changed as the outcome is predetermined and the offer tends to favour the government shareholders.
Yuexiu Property (123 HK): Rights Trade Playbook
- On 20 April, Yuexiu Property (123 HK) announced plans to raise US$1.1 billion through 30 rights shares for every 100 existing shares rights offering, with a rights price of HK$9.00.
- Since the announcement of the rights issue, Yuexiu shares have declined by -23.6% to the undisturbed price and by -18.2% compared to the TERP of HK$11.74 per share.
- The shares went ex-rights on 2 May and the rights start trading on 15 May. Link REIT (823 HK)’s trading over its rights period provides the playbook for Yuexiu’s trading.
HSCEI Index Rebalance: China Shenhua (1088 HK) Replaces Country Garden (2007 HK); Div Impact
- As expected, China Shenhua Energy Co H (1088 HK) replaces Country Garden Holdings Co (2007 HK) in the Hang Seng China Enterprises Index (HSCEI INDEX) at the close 2 June.
- Using prices from the close on 12 May, estimated one-way turnover is 2.1% leading to a one-way trade of HK$1.3bn (US$170m).
- The change will lead to an increase in the fair value of the HSCEI 2023 Dividend Futures. We’d be sellers on a move higher towards 240 DIPS.
Nikkei 225 Index Consultation Makes Things Weirder, but Still a 0️⃣🍔
- The Nikkei Index team has been quite conscious of market impact since the April 2000 debacle. For a few years after, things were quieter. In 2005, Fast Retailing spurred introspection.
- Float was low and became lower. Selection behaviour changed. Now there is a new consultation where “technical listings” would stay in, and phased “stepwise” inclusion would reduce inclusion impact.
- The proposal increases subjectivity, reduces the attractiveness of bets, but otherwise increases the likelihood they will follow the other selection rules. It STILL does not solve the high weight problem.
The Core of CFD Margin Call Risk May Lie in the JPM Counter, Not SG: Potentially Infected Names
- The possibility of experiencing a CFD margin call is a genuine and persistent concern. Even a small trigger causes selling pressure to intensify and results in a rapid downward trend.
- The counter that the local market is closely monitoring is JPM. The selling pressure from the JPM counter since May 8th has exhibited an abnormal pattern.
- Eight names are screened. They are KOSPI 200/KOSDAQ 150 constituents with JPM’s net selling volume to SO being 0.2% or higher, and a margin-equity ratio of 3% or higher.
Merger Arb Mondays (15 May) – SBI Shinsei, Arteria, Toshiba, Yitai, Hailan, Allkem, Lian Beng
- 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 111 Inc (YI US), ARTERIA Networks Corp (4423 JP), Estia Health (EHE AU), United Malt Group Ltd (UMG AU), Aag Energy Holdings (2686 HK), Hailan Holdings (2278 HK).
- Lowest spreads – Healius (HLS AU),Liontown Resources (LTR AU), Penguin International (PBS SP), Lian Beng (LBG SP), Mincor Resources NL (MCR AU), Blackmores Ltd (BKL AU), Arcland Service.
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