In this briefing:
- ECM Weekly (6 April 2019) – Bilibili, Huya, Qutoutiao, Polycab, PNB Metlife, CIMC Vehicle
- Nexon Sale: Key Questions at This Point & Most Realistic Answers
- Huya Offering: Everyone Else Was Doing It Excuse
- ALTABA UNWINDING – Not Much Juice, and Considerably Different Skew
- StubWorld: Naspers’ Restructuring Update
1. ECM Weekly (6 April 2019) – Bilibili, Huya, Qutoutiao, Polycab, PNB Metlife, CIMC Vehicle
Aequitas Research puts out a weekly update on the deals that have been covered by Smartkarma Insight Providers recently, along with updates for upcoming IPOs.
Placements activity picked up momentum this week as evidenced by the number of follow-on offerings launched by a handful of US-listed Chinese tech companies. It all started with Qutoutiao Inc (QTT US) ‘s follow-on offering, then followed by Bilibili Inc (BILI US)‘s equity + convertible note placement, and ending the week with HUYA Inc (HUYA US)‘s follow-on offering and Baozun Inc. (BZUN US)‘s convertible bond and placement.
On the other hand, Ruhnn Holding Ltd (RUHN US)‘s debut this week had been a total disaster. It closed 37% below its IPO price on the first day. This is the worst first-day performance among Chinese ADRs (deal size >US$100m) in the past six months.
Back in Hong Kong, Dongzheng Automotive Finance (2718 HK) also broke its IPO price on the first day after relaunching at a much lower price. As per our trading update note, considering that there will be greenshoe support, we thought that the risk to reward could be favorable for a trade (from its first day mid-day price of HK$2.57).
As for placements, Ronshine China Holdings (3301 HK) seems to have made its equity raise a yearly affair. The company is back to tap the equity market through a top-up placement and it has done the same in 2017 and 2018. The initial deal size was small, US$122m, but was upsized later on. The share price traded well post-placement, closing 9.5% above its deal price of HK$10.95 on Thursday.
For upcoming IPOs, we heard that Leong Hup International (LEHUP MK) has started pre-marketing and Sumeet Singh had already shared his early thoughts on the company in Leong Hup Pre-IPO – Hard to Pinpoint What’s Going to Be the Revenue Driver Going Forward.
We are also waiting for Shenwan Hongyuan Hk (218 HK) and CIMC Vehicle Group Co Ltd (1706044D HK) to launch their IPO since they already been approved on the HKEX. Ke Yan, CFA, FRM had also analyzed the two companies in his notes:
- Shenwan Hongyuan (申万宏源) A+H: A Commoditized Broker Business
- CIMC Vehicle (中集车辆): Market Leader of Semi-Trailers but Little Growth Ahead
Map Aktif Adiperkasa PT (MAPA IJ) will be closing its bookbuild for its follow-on offering next Tuesday (pricing on Wednesday). We heard that books are already covered as of Thursday.
Accuracy Rate:
Our overall accuracy rate is 72.4% for IPOs and 63.5% for Placements
(Performance measurement criteria is explained at the end of the note)
New IPO filings
- Changliao AKA 派派(Hong Kong, ~US$100m)
Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.
News on Upcoming IPOs
- Leong Hup – comeback sunny side up
- Polycab India eyes to raise around Rs 1,345 crore through IPO
- Carlyle-backed Metropolis Healthcare’s IPO nears halfway mark on second day
- Eagle Hospitality Trust eyes Singapore IPO to raise up to US$575m
- Cancer Treatment Firm Plans Hong Kong IPO
- Goldman-Backed Chinese Online Pet Store Boqii Plans IPO
- China drone maker EHang delays IPO plan, eyes private funding-sources
This week Analysis on Upcoming IPO
- Map Aktif Follow-On Offering – Lace up for a Potential Long Run
- Zhongliang (中梁地产) Pre-IPO Review – Incredible Growth Bogged Down by Related Party Transactions
- CIMC Vehicle (中集车辆): Market Leader of Semi-Trailers but Little Growth Ahead
- PNB Metlife Pre-IPO Quick Take – Doesn’t Stack up Well Versus Its Larger Peers
- Polycab India Limited IPO – Probably Near Peak Margins, Improvements Unexplained
2. Nexon Sale: Key Questions at This Point & Most Realistic Answers
This post discusses the key questions on Nexon sale at this point. It then provides the most realistic answers to these questions from various circumstantial aspects. This post is based on the recent news reports and also various local sources.
3. Huya Offering: Everyone Else Was Doing It Excuse
Follow-on offerings by Chinese ADRs are the flavour of the day. Hot on the heels of Qutoutiao Inc (QTT US) and Bilibili Inc (BILI US), HUYA Inc (HUYA US) filed for a potential $550 million public offering without presenting any details on the new ADS being offered. Also, certain selling shareholders will offer shares in the offering.
Huya is one of the few recent Chinese “new-economy” IPOs which has lived up to the hype by delivering a creditable post-IPO financial performance. While Huya has proven to be a good IPO, we believe this follow-on offering is highly opportunistic and would be tempted to participate only at a large discount.
4. ALTABA UNWINDING – Not Much Juice, and Considerably Different Skew
On February 27th of this year, Altaba Inc (AABA US) held a “Strategic and Financial Update Conference Call.” In that call the company led by CEO Thomas McInerney said that effectively it was going to deal with its two major remaining assets (2.03bn shares of Yahoo Japan Corp (4689 JP) and 383.56mm shares of Alibaba Group Holding Ltd (BABA US)) in two stages, saying at the time they were “moving to an active monetization mode on [our] Yahoo Japan stake.”
That Yahoo Japan stake took longer, but the company worked to sell $20+bn of Alibaba last summer through a tender offer and selldown to generate cash for corporate liabilities and taxes, and then the company sold its Yahoo Japan stake in early September.
Since then, there has been a period of watchful waiting. Some have been expecting a period with an acceptable amount of carry and then possible significant upside. I haven’t seen the upside but agree there has been some baseline carry. And if you can get lots of leverage on this and ride the volatility, it could produce an OK return from A to Z if you ignore the indignities and volatility of passing through stops B to Y.
The New News
Yesterday, Altaba and CEO McInerney held a conference call after filing a PRE 14A preliminary proxy statement related to the selldown/unwinding of its entire Alibaba stake and the proposed windup/dissolution of Altaba as an entity.
Set of Relevant Documents and Filings | ||
| Document | HTML | |
| Press Release | 👹 | |
| PRE 14 A Preliminary Proxy Filing | 👹 | 🤖 |
| DEFA14A Additional Info | 👹 | 🤖 |
| DEFA14A Additional Info – Call Transcript | 👹 | 🤖 |
| The Webcast | 🤖 | |
| Home Page with Basic Details | 👹 | |
| Annual Report from Year to 31 December 2018 | 🤖 | |
The company will sell or distribute, in stages, its remaining net assets to shareholders, with a “pre-dissolution liquidating distribution to stockholders (in cash, Alibaba ADSs or a combination thereof), which the Fund currently expects will be made in the fourth quarter of 2019 and estimates will be in an amount between $52.12 and $59.63 per Share in cash and/or Alibaba ADSs (which estimates assume, among other things, an Alibaba Share price realized on sale and, if applicable, an Alibaba Share value at the time of distribution, of $177.00 per Alibaba Share).”
As p55 of the preliminary proxy makes clear (and as discussed in the transcript linked above, which is short and worth reading), based on the same US$177/share assumption of value realized or distributed per Alibaba share held, the total distributed would be in a range of $76.72 and $79.72 based on some other assumptions. A larger portion of the remaining amount could take 12 months to arrive, and there could be other residual portions which will take longer (years), as discussed in the proxy and call transcript.
The figure of $76.72 – $79.72 represents a 5.44-9.56% premium to yesterday’s close of $72.76/share and represents the total of the Pre-Dissolution Liquidating Distribution in Q4 2019, a second distribution in Q4 2020, then residuals thereafter after the court-mandated holdback in the dissolution process pays its claims.
Fair value calculations, parameters, and risk discussion below.
Elaborate fair value calculations using different assumptions of appropriate discount rates for each payment, and exactly how much is in the last bit (and how long it takes to pay out) suggest a group of ranges of fair value, from about 3-4% below the last-traded price, to about 4-5% above. However, for a hedge fund to earn a 10% net return for investors from owning the trade at the close of yesterday, getting there requires a fair bit of leverage and the resulting information ratio may be lower than desirable.
Assuming the approximate time to payment as described in the proxy statement, and amount of payment in the first distribution as described, and a multi-year residual of US$5/share, current borrow rates and an assumption of slightly higher discount rate required for the portion of time the stock is unlisted and even higher when one is receiving residual claims, the current fair value of the stock ranges from about 2% below current price and 4% higher. If you assume a higher Holdback Amount, the range of outcomes shifts lower.
5. StubWorld: Naspers’ Restructuring Update
This week in StubWorld …
- Naspers Ltd (NPN SJ)‘s discount to NAV narrows as it teases out more information on spinning-off and separately listing Tencent Holdings (700 HK).
Preceding my comments on Naspers are the weekly setup/unwind tables for Asia-Pacific Holdcos.
These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.
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