In today’s briefing:
- CSI500 Index Rebalance Preview: 50 Adds/Deletes in December
- Toshiba – How Much Risk Is There On A Deal Break?
- KOSDAQ150 Ad Hoc Index Rebalance: LX Semicon OUT, Nextin IN
- MSCI Korea IR: Market Cap Cutoff, NOC, & Constituent Changes
- Ad Hoc S&P500 Change on Twitter Deletion
- Nitro Software Rejects Potentia, Again, And Engages With KKR
- KOSDAQ150 Index Rebalance Preview: Big Churn in IT, Healthcare Stocks
- End of Mandatory Lock-Up Periods for 54 Companies in Korea in November 2022
- China VAST’s Vote on 23 November
- Chiho (976 HK): Possible Restructuring May Trigger Offer
CSI500 Index Rebalance Preview: 50 Adds/Deletes in December
- With a day left in the review period, we forecast 50 changes (the maximum permitted) for the CSI500 Index at the close on 9 December.
- We estimate a one-way turnover of 13.53% at the December rebalance leading to a one-way trade of CNY 8.01bn. The Materials, Consumer Discretionary and Information Technology sectors are net gainers.
- The potential adds and potential deletes have performed in line over the last few weeks, and we’d look to position for outperformance post the end of the review period.
Toshiba – How Much Risk Is There On A Deal Break?
- With Toshiba giving up its deal premium on news that the JIP consortium was struggling to secure financing it is worth assessing how much downside risk there is.
- Prospects are deteriorating rapidly and we believe valuations for Kioxia and the HDD business are likely to lead the way down.
- We estimate that there is still a premium of about 20-25% being assessed for the possibility of a deal but that there is fundamental risk beyond this.
KOSDAQ150 Ad Hoc Index Rebalance: LX Semicon OUT, Nextin IN
- Following its planned section transfer, LX Semicon (108320 KS) will be deleted from the KOSDAQ 150 Index at the close on 2 November and replaced by Nextin (348210 KS).
- Passive trackers will need to buy over 4.5 days of ADV on Nextin (348210 KS) and sell over 1.5 days of ADV on LX Semicon (108320 KS).
- Belonging to the Information Technology sector, there is zero chance of LX Semicon (108320 KS) being added to the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX).
MSCI Korea IR: Market Cap Cutoff, NOC, & Constituent Changes
- The NOC of MSCI Korea Standard is 111, and the market cap of the 111th-ranked company is ₩2.44T on Day 1 and ₩2.40T on Day 2.
- In addition to Hyundai Mipo, Ecopro passed the screening. On the other hand, only Meritz Securities and CJ ENM managed to stay inside the safe zone among the deletion candidates.
- The recently increased price fluctuations likely resulted in delaying the entry timing of flow trading. So, we should set the expected return of our basket trade a bit more aggressively.
Ad Hoc S&P500 Change on Twitter Deletion
- S&P DJI announced late 27 October 2022 that Twitter Inc (TWTR US) would be deleted from the S&P500, replaced by Arch Capital (ACGL US).
- RXO would be added to the MidCap400 while Bread Financial Holdings (BFH) would move from MidCap400 to SmallCap600 and Unifi Inc (UFI US) would get deleted from the 600.
- This insight presents the issues and the flows, which are not to be separated.
Nitro Software Rejects Potentia, Again, And Engages With KKR
- On the 28 October, Potentia announced an improved (and final) off-market Offer of A$1.80/share for Nitro (NTO AU), a 13.9% improvement over its initial proposal on the 30 August.
- Nitro has now concluded the Potentia Takeover Bid undervalues Nitro. The Offer, however, is still proceeding, and will open in two weeks.
- Separately, KKR’s Alludo has pitched a non-binding – subject to due diligence – Offer by way of a Scheme (or off-market takeover) at A$2.00/share. Nitro is supportive of this Offer.
KOSDAQ150 Index Rebalance Preview: Big Churn in IT, Healthcare Stocks
- With the review period complete, we see 11 potential changes to the KOSDAQ 150 Index (KOSDQ150 INDEX) at the December rebalance.
- Most of the potential changes are high probability ones, but there are some stocks that are very close to market cap and liquidity cutoffs.
- The impact of passive trading will be much higher on the potential deletes as compared to the potential inclusions, though trade notionals are higher for the potential adds.
End of Mandatory Lock-Up Periods for 54 Companies in Korea in November 2022
- We discuss end of the mandatory lock-up periods for 54 stocks in Korea in November 2022, among which 2 are in KOSPI and 52 are in KOSDAQ.
- These 54 stocks on average could be subject to further selling pressures in November and could underperform relative to the market.
- Among these 54 stocks, the top 5 market cap stocks include Enchem, Sebit Chem, DearU, Sillajen, and Sampyo Cement. They could be exposed to greater selling pressures in November.
China VAST’s Vote on 23 November
- China Vast Industrial Urban Development (6166 HK)‘s scheme document is out with the court meeting scheduled for 23 November. The IFA considers the offer to be fair and reasonable.
- Key conditions include approval by at least 75% of independent shareholders (<10% rejection). Shareholders with blocking stakes either provided irrecovables or will likely support the offer.
- The offer is not great but headcount test is not applicable. At last close and for the 14 December payment, the gross and annualised spread is 0.8% and 6.7%, respectively.
Chiho (976 HK): Possible Restructuring May Trigger Offer
- Metal recycler Chiho Environmental Group Limited (976 HK) was suspended this morning pursuant to Hong Kong’s Takeovers Code.
- For more than a year, the controlling shareholder group has been implementing a potential restructuring. The ultimate controlling shareholder is Tu Jianhua, an executive director of Chiho.
- This long drawn-out reorganisation may finally result in an Offer for Chiho.
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