In this briefing:
- China Strategy of Promising to Buy Stuff Just Might Work on Trump as He Looks for an Easy “victory”
- RRG Global Macro Weekly – Poland and Malaysia Face External Forces in 2019
- The Week that Was in ASEAN@Smartkarma – Export Revival, Indonesia Property, and Vietnamese Banks
- Medco’s “Okay” Offer For Ophir After Fortuna Setback
1. China Strategy of Promising to Buy Stuff Just Might Work on Trump as He Looks for an Easy “victory”
- US-China trade negotiations are focusing on the easy parts to avoid truly difficult discussions on thornier structural issues.
- Beijing is trying to buy their way to a compromise by taking out their checkbook and promising to buy more US products.
- A truly comprehensive trade pact will be difficult, perhaps even impossible, to reach.
That’s because many of the problems Washington wants resolved in China will require more than a few regulatory tweaks. - The bureaucratic harassment, theft of intellectual property, and overt favoritism toward local firms that make doing business in China difficult for American chief executives are caused by the very way the Chinese economy works.
- Changing these procedures means changing China’s basic economic system. Beijing’s leaders cannot possibly achieve such an overhaul in the short term—assuming they even want to.
CNBC Interview of David Riedel on US-China Trade
2. RRG Global Macro Weekly – Poland and Malaysia Face External Forces in 2019
- Poland: Could be a beneficiary of Brexit if Poles return to boost domestic demand. Unemployment of 5.5% provides room for workers.
- Brazil: Congress returning to discuss market-friendly policies from Bolsonaro – Pensions are top of list for reform
- Malaysia: Extremely dependent on external trade Malaysia has done well recently but may face headwinds if global growth slows.
3. The Week that Was in ASEAN@Smartkarma – Export Revival, Indonesia Property, and Vietnamese Banks
This week’s offering of Insights across ASEAN@Smartkarma is filled with another eclectic mix of differentiated, substantive and actionable insights from across South East Asia and includes macro, top-down and thematic pieces, as well as actionable equity bottom-up pieces. Please find a brief summary below, with a fuller write up in the detailed section.
Last week saw some interesting macro commentary from Sharmila Whelan on the potential recovery in Asian exports this year, whilst Dr. Jim Walker zeros in on the USD, suggesting it is no longer the force it once was. In the Equity Bottom-Up Section, Lloyd Moffatt revisits MacroAsia Corp (MAC PM) after visiting the company in Manila, whilst Paul Hollingworth zeros in on Asia Commercial Bank/Vietnam (ACB VN). In the Sector and Thematic section, Angus Mackintosh and Jessica Irene introduce a series of Insights under Smartakrma Originals on Indonesian Property.
Macro Insights
In Asian Exports – Ripple Out Effect, Sharmila Whelan analyses the outlook for Asian exports after a weaker end to last year but sees a potential recovery ahead.
In The Dollar Is Already Dead, economist Dr. Jim Walker suggests that the outlook for the dollar is less than rosy and is not as important as it once was in policy making terms.
In Election Body Pressured / Lippo Tested / FDI / AGO Martyrs Foe / SMI on GDP / Matchfixing / CPO Fuel, Kevin O’Rourke comments on the most significant political and economic developments in Indonesia over the past week.
Equity Bottom-Up Insights
In MacroAsia (MAC PM) – Company Visit Highlights Short-Term Headwinds but Core Business on Solid Ground, Lloyd Moffatt circles back to this aircraft Philippines aircraft maintenance player after a conversation with management on the ground.
In DTAC: Survived 2019 but Pressured on All Sides. Maintain Reduce., our friends at New Street Research revisit Total Access Communication (DTAC TB) after a difficult 2018 and continue to see hurdles ahead.
In RHT Health Trust – Cash on Sale, Royston Foo looks at RHT Health Trust (RHT SP) after the disposal of its portfolio of Indian assets to Fortis. On 15th January 2019, RHT Health Trust (RHT SP) announced the completion of the disposal of RHT’s entire asset portfolio of clinical establishments and hospitals in India to Fortis.
in ACB: Quality at a Reasonable Price, Paul Hollingworth takes a close look at this leading Vietnamese bank and takes a positive view. The fundamental trends at Asia Commercial Bank/Vietnam (ACB VN) are benign and stand out within Vietnam’s improving banking universe.
Sector and Thematic Insights
In this Smartkarma Original, Indonesia Property – In Search of the End of the Rainbow? Introduction to a Series., Angus Mackintosh and Jessica Irene examine the outlook for Indonesian Property and look for potential catalysts for this laggard sector.
In INDO Snippets: Social Media on Presidential Debate, Battle of Mobile Payment Platform OVO & Go-Pay, Jessica Irene brings together substantive and significant on the ground chatter that may potentially have a meaningful impact on the Indonesian Equity Market.
In Singapore Real Deals (Issue 2): The Under-Supplied Executive Condominium Market, property specialist Anni Kum produces a fortnightly property digest that takes you through the peculiarities of Singapore’s real estate market.
4. Medco’s “Okay” Offer For Ophir After Fortuna Setback
On 30th January 2019, Indonesian oil and gas company Medco Energi Internasional T (MEDC IJ) announced an agreement to acquire Ophir Energy (OPHR LN) in a £390mn cash deal (at an offer price of £0.55/share).
Medco initially made an unsolicited approach for Ophir at £0.58/share on 22nd October 2018, and indicated a “willingness to consider offering Ophir’s shareholders additional potential consideration via contingent value rights in relation to the Fortuna LNG asset in Equatorial Guinea (which at the time was awaiting an extension approval) subject to further analysis and due diligence“. Given uncertainty that persevered on Fortuna’s license extension, Medco revised its bid to £0.538/share on 20th December 2018.
On 7th January 2019, Ophir announced that it was recording a $300mn non-cash impairment following the denial of the license extension for the Fortuna project by the Equatorial Guinea Ministry of Mines and Hydrocarbons. Ophir had previously written down $310mn back in September. Subsequently, Medco revised its bid further down to £0.485 on 11th January 2019 but this offer was rejected by Ophir’s board.
Medco’s latest offer of £0.55/share is a 66% premium to the closing price of £0.33 on 28 December 2018. Ophir’s board has unanimously recommended the latest offer stating that the deal offered “upfront cash value” to its shareholders and that the offer price “reflects the future prospects of Ophir’s high-quality assets“.
The deal is conditional on receiving 75% shareholder approval, receiving of clearances from the relevant authorities in Tanzania and Ophir not losing all or substantially all of its Bualuang interests in Thailand. It is expected that the Scheme will become effective in the first half of 2019.
Medco’s offer does provide long-suffering Ophir shareholders with an okay exit in a less-than-ideal situation. Ophir’s shares have been trading at or close to terms. Given Medco’s numerous proposals in short succession – four in three months – a bump cannot be dismissed. And the recent disclosure of a new shareholder may warrant such an outcome. But I’d be disinclined to chase through terms.
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