In today’s briefing:
- Zhejiang Expressway (576 HK) Rights Offering – The Dynamics May Be Interesting
- JSR (4185) – Time To Fight The FUD
- Origin: Brookfield’s “Inferior” Alternative Proposal
- S&P/ASX Index Rebalance Preview: Big Impact; A Week From Announcement
- Xiaomi (1810 HK): Outperformance Leads to Passive Selling & Opens Up Trading Opportunities
- KOSDAQ150 Index Rebalance: 17 Changes a Side; Many Surprises
- EOFlow (Further) Tests Investor Patience
- KOSPI200 Index Rebalance: Mostly Expected Though Some Discretion Used
- CareNet (2150) – Watch the TOPIX Birdy (Smallcap)
- Origin Energy (ORG AU): Brookfield/EIG’s Latest Effort Falls Flat
Zhejiang Expressway (576 HK) Rights Offering – The Dynamics May Be Interesting
- Last week, Zhejiang Expressway Co H (576 HK) announced its rights offering on both its H-Shares and its A-Shares, previously mooted on 23 May, and the Circular on 26 June.
- The company applied, got CSRC approval on 5 Nov, announced the issuance on 6 Nov, and shares went ex- on 10 November. It’s probably unneeded, but it’s there.
- The stock is cheap. The company will boost its payout ratio. And it isn’t that “heavy” a deal. The Rights Trading Dynamics may be interesting.
JSR (4185) – Time To Fight The FUD
- Many months ago I suggested the JIC Tender Offer JSR Corp (4185 JP) was not overwhelmingly high-priced, but that it would be “heavy” for months to come.
- FUD and Flows would widen the spread. And they did.
- Now the time decay to expected approvals and tender offer start are getting steep. Time to Fight The FUD.
Origin: Brookfield’s “Inferior” Alternative Proposal
- Origin Energy (ORG AU)‘s Scheme vote today was always going to be a tenuous affair with AusSuper’s ~17.5% blocking stake, and Perpetual also firmly in the “against” camp.
- The Scheme meeting has now been adjourned. Origin said that based on the proxy votes, it was unlikely the Scheme would have achieved the required 75% approval by shareholders.
- In addition, the Brookfield-led consortium has pitched a alternative non-binding and indicative proposal which Origin views as inferior to the existing Scheme, and has significant reservations as to its complexity.
S&P/ASX Index Rebalance Preview: Big Impact; A Week From Announcement
- There could be 3 changes for the S&P/ASX 200 (AS51 INDEX) in December. There are unlikely to be any changes for indices higher up the hierarchy.
- Passive trackers will need to buy between 7-11 days of ADV in the inclusions while the impact on the deletions will be larger at between 11-23 days of ADV.
- Short interest has decreased on the potential inclusions and increased on the potential deletions. There is significant pre-positioning on some of the stocks.
Xiaomi (1810 HK): Outperformance Leads to Passive Selling & Opens Up Trading Opportunities
- Xiaomi Corp (1810 HK) is a member of the Hang Seng Index, Hang Seng China Enterprises Index and Hang Seng TECH Index, among others.
- Capping of stocks at 8% of the index weight will lead to selling in Xiaomi (1810 HK) at the close on 1 December, mainly from Hang Seng TECH Index trackers.
- Relative underperformance vs the HSTECH Index from now to Tuesday will require passive to sell less stock, while outperformance will lead to increased passive selling. That opens up trading opportunities.
KOSDAQ150 Index Rebalance: 17 Changes a Side; Many Surprises
- There are 17 inclusions and 17 exclusions for the KOSDAQ 150 Index (KOSDQ150 INDEX) at the December rebalance to be implemented at the close on 14 December.
- While most of the inclusions were expected, there are many differences on the deletes. Trading the strategy becomes tougher with the short sell ban in place.
- The adds have started to outperform the deletes over the last month and there could be more movement over the next 3 weeks to implementation.
EOFlow (Further) Tests Investor Patience
- Back on the 25 May, when Medtronic Plc (MDT US) enter into a SPA with EOFlow (294090 KS)‘s CEO, with a follow-on Tender Offer, the whole construct looked pretty clean.
- Then in August Insulet Corp (PODD US) launched its lawsuit, which in hindsight, should have been expected. Then earlier this month, news surfaced concerning a stock-backed loan to the CEO.
- Now the CEO is selling, presumably to repay his collateralized loan. Shares are down 38% since the resumption of trading, and are now at a whopping 122% spread to terms.
KOSPI200 Index Rebalance: Mostly Expected Though Some Discretion Used
- There will be 7 additions and 7 deletions for the Korea Stock Exchange KOSPI 200 (KOSPI2 INDEX EQUITY) at the December rebalance that will be implemented on 14 December.
- The rebalance is on expected lines, though the index committee decided not to add Youngpoong Paper (006740 KS) to the index. Not really a big surprise given the price move.
- HDC Hyundai Development Co-Engineering & Construction (294870 KS) is a surprise delete and there is not much short interest that could cover against the passive selling.
CareNet (2150) – Watch the TOPIX Birdy (Smallcap)
- Carenet Inc (2150 JP) is a “medical contents” provider. It acts as a distributor of information to doctors and medical practitioners over the internet, and also consults with pharmaceutical companies.
- On Wednesday, they announced that they were going to move from TSE Growth to TSE Prime as of 29 November.
- At ¥31bn market capand this may turn people off, but it may be a treat for some. There is a reason why there are some big holders.
Origin Energy (ORG AU): Brookfield/EIG’s Latest Effort Falls Flat
- Origin Energy (ORG AU) has postponed its scheme meeting to 4 December after it received a non-binding indicative proposal from Brookfield/EIG to amend the current scheme.
- The Board admitted the current scheme was likely to be voted down if the meeting was held today. The alternative transaction structure will struggle to gain shareholder support.
- If Brookfield/EIG walks, the share price will fall, at least in the short term. We think a reasonable deal break price is A$7.40, an 11% downside to the last close.
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