This weekly newsletter pulls together summaries of the top ten most-read Insights across Event-Driven and Index Rebalance on Smartkarma.
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1. Tsuruha (3391) And Welcia (3141) To Move UP Merger to End-2025; Makes It TWO Trades in 18mos?
- In Feb-24, Aeon (8267) agreed with Oasis Management to buy its stake in Tsuruha Holdings (3391) and Tsuruha and Welcia Holdings (3141) would discuss a merger, details decided by end-2027.
- On Saturday 27 December, a Jiji article said the two would look to integrate by end-2025, now that they no longer need SEC approval. That reason sounds wrong.
- The language of the articles is odd but we have to take it at face value. That means we look to what might happen between here and there.
2. HSCEI Index Rebalance Preview: Increase in Velocity Could Lead to 3 Changes in March
- BeiGene and ZTO Express Cayman are potential inclusions for the Hang Seng China Enterprises Index in March while Sino Biopharmaceutical and Li Ning are potential deletions.
- There is a lower probability of Yum China Holdings (9987 HK) replacing Sunny Optical Technology Group (2382 HK) in the index in March.
- There could be a few more index inclusions for ZTO Express Cayman in March and the stock could outperform its peers over the next few months.
3. ITC Hotels: Index Implications of Demerger from ITC Ltd (ITC IN)
- ITC Ltd (ITC IN) will demerge its Hotels business with the ex-date set as 6 January and shareholders receiving 1 share of ITC Hotels for 10 shares of ITC Ltd.
- ITC Ltd (ITC IN) shareholders will own 100% of ITC Hotels – 60% will be owned directly and 40% will be owned through their shareholding in ITC Ltd (ITC IN).
- There will be a lot of selling in ITC Hotels within a few days of listing from different passive index trackers and that could provide buying opportunities for those interested.
4. Sun Art Retail (6808 HK): BABA Takes Massive Hit After Inking SPA @ HK$1.38
- HK$1.38/Share. That’s the takeaway as Alibaba Group (9988 HK) enters an SPA to offload its 78.7% stake in Sun Art (6808 HK) at HK$1.38/share, a 44.4% discount to last close.
- The buyer, Paragon Shine, an entity under Chinese PE outfit DCP Capital, is paying ~HK$12.3bn compared to BABA’s HK$28.1bn purchase of a 51% stake in October 2020.
- Should the SPA complete, an unconditional MGO is triggered. Minorities tendering can receive up to HK$1.58/share. But the question is: why would BABA be cashing out at this price?
5. Australia: Six Stocks in Passive Selling Crosshairs for February
- Up to six Aussie stocks could be deleted from global passive portfolios in February. The final list of deletions depends on stock performance over the next 2-3 weeks.
- If deleted, passive trackers will need to sell between A$370m-A$500m in the stocks. Impact is high at between 7-24 days of ADV.
- The potential deletions have underperformed the S&P/ASX 200 (AS51 INDEX) over every time period from 1 week to 3 months. Positioning is still low in a few stocks.
6. InnoScience (2577 HK): Prices at Low End & Lists Today; Index Inclusion Timeline
- InnoScience Suzhou Technology (2577 HK) has priced its IPO at HK$30.86/share, the low end of the range. Over half the shares have been allotted to cornerstone investors.
- InnoScience Suzhou Technology (2577 HK) should be added to the HSCI in March and will be added to Southbound Stock Connect early March.
- Inclusion in global indices will take place in 2026 and there will be supply in mid- and late-2025 following lock-up expiries.
7. Adani Green Energy (ADANIGR IN): Facing the Passive Boot; But Who Will Buy?
- Passive global index trackers sold Adani Green Energy (ADANIGR IN) in November following a big drop in free float for the stock.
- There could be more selling in Adani Green Energy in February as the stock is deleted from the same large global index due to failing free float market cap thresholds.
- With the company at the center of the U.S indictment focused on bribery charges, active foreign and local investors will be wary of buying the stock.
8. NZ: Contact Energy (CEN NZ) Hotter Than Mercury (MCY NZ) As Catalyst Looms
- Contact Energy (CEN NZ) has outperformed Mercury NZ Ltd (MCY NZ) over the last month off the back of expected passive flows in February.
- Despite the outperformance, Contact Energy (CEN NZ) trades at a lower forward PE compared to Mercury NZ Ltd (MCY NZ), though it does trade at a higher Price to Book.
- There could be large passive inflows to Contact Energy (CEN NZ) and large passive outflows from Mercury NZ Ltd (MCY NZ) in February.
9. Merger Arb Mondays (30 Dec) – ESR, Canvest, Vesync, GAPack, SDHS New Energy, CPMC, Makino, Arcadium
- We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
- Highest spreads: Vesync (2148 HK), Makino Milling Machine Co (6135 JP), Seven & I Holdings (3382 JP), Arcadium Lithium (LTM AU), Get Nice Financial Group Ltd (1469 HK).
- Lowest spreads: Lifestyle China (2136 HK), Renewable Japan (9522 JP), Macromill, Inc (3978 JP), Fuji Soft Inc (9749 JP), Latin Resources (LRS AU), Lac Co Ltd (3857 JP).
10. Canvest (1381 HK): Attractive Spread with Steady Progress in Precondition Satisfaction
- Grandblue Environment Co A (600323 CH) continues to make steady progress in satisfying the precondition for its HK$4.90 privatisation offer for Canvest Environmental Protection Group (1381 HK).
- Two of the five preconditions are satisfied, and another will be satisfied by 20 January. The long stop date of 17 July provides ample time to satisfy the remaining two.
- Although the peers have materially re-rated, the offer implies a premium compared to peer multiples. Vote risk remains low, aided by selling by a shareholder with a blocking stake.
