Last Week in Event SPACE: Biden's New Executive Order, MMC, Invesco Office, WH Group, EPS, Link
Last Week in Event SPACE ...
- It is key to note how much care the Biden Administration used in the drafting of the Executive order. There are explicit and careful statements that label which activities constitute a reason for the sanction.
- Syed Mokhtar tables a punchy premium to last close to mop up the 48.24% of shares out not held in MMC Corp Bhd (MMC MK).
- The fact that Starwood lowered the minimum threshold makes it more likely that Starwood can be successful in its Offer for Invesco Office J Reit (3298 JP), and this signals the beginning of the endgame.
- WH Group (288 HK), the world's largest pork company, remains suspended pending a possible takeover.
- The price for EPS Holdings (4282 JP) is too low to be reasonable. This needs more cowbell.
- Link Administration Holdings (LNK AU) brushes off an outright sale of PEXA and proceeds towards an IPO.
- Plus, other events, CCASS movements and Mood Spins.
(This insight covers specific insights & comments involving Stubs, Pairs, Arbitrage, share Classifications, and Events - or SPACE - in the past week)
EVENTS
Biden’s New “Trump Exec Order on China”
On 3 June 2021, four and a half months after taking office, and six and a half months after the 12 November 2020 Trump Executive Order 13959 regarding Chinese Military Companies, US President Joseph Biden announced a new Executive Order (Fact Sheet) "Addressing the Threat from Securities Investments that Finance Certain Companies of the People’s Republic of China." While Joe Biden and his selection of appointees made clear early on they were not going to be "soft on China", the Secretary of the Treasury had not made any significant policy changes to the Trump EO 13959 and its implementation. This new EO ups the game quite a bit, extends the list by almost two dozen names, and most significantly creates a new framework for understanding the US government's future policy aims in this regard. The last bit is what is important.
- This Executive Order represents a change in process. It is a step up in terms of the US providing "process" through which to sanction "bad actor" states. These sanctions are not terribly grave and the prohibition of US Persons purchasing these securities is a nothingburger in the grand scheme of things. But it creates a framework for providing a low level first step to sanction bad actor states and the companies which work for bad actor states.
- This new Executive Order provides a stepping stone to identifying other "national security issues" to be sanctioned. Today it is "surveillance technology". It could later be "cybercrime" or cyber-intrusion, where actions to hack, take over, or ransom operations of national security-sensitive operations (infrastructure, utilities, etc) perpetrated by or sponsored by state actors who do so on a regular basis could be interpreted to trigger Bad Actor status. People related to such activities would then be sanctioned under a similar kind of program. And this new Biden Executive Order is effectively new law.
- The Trades? Sell Cssc Offshore & Marine Engg Group (317 HK) which will be deleted from FTSE. Given this is an H/A spread, one could imagine the H/A discount could come under pressure (i.e. widen). Buy CGN Power Co Ltd H (1816 HK), which was surprisingly not included. And generically avoid names on the list until the end unless significantly weak. I expect National Team Buying will ensue but the A names have all always been driven by local interest and local news, particularly retail activity.
Travis Lundy's insight: Biden's New "Trump Exec Order on China" - New Names Are Small Potatoes, the Principle Is The Thing
Brian Freitas's insight: POTUS Executive Order: Updated List of Chinese Stocks to Be Deleted by FTSE & MSCI
M&A - ASIA
MMC Corp Bhd (MMC MK) (Mkt Cap: $1.0bn; Liquidity: $6mn)
MMC has announced Seaport Terminal (Johore) Sdn Bhd, a wholly-owned entity of Tan Sri Syed Mokhtar Albukhary, has made an Offer for all shares not owned at RM2.00/share, a premium to last close of 70.94%. The Offer is being done via a selective capital reduction and repayment (SCR) exercise. Seaport Terminal owns 51.76% of MMC. MMC primarily operates a number of ports in Malaysia, plus holds equity stakes in Malakoff Corp (MLK MK) and Gas Malaysia (GMB MK). The Offer involves a Scheme-like vote at an EGM. The blocking stake at the EGM would be 146.89mn shares or 4.824%. No single shareholder holds such a stake. I'm excluding Permodalan Nasional - with 20.9% - as presumably they were sounded out prior to the Offer announcement.
- MMC's jewel is the ports, and I would expect Mokhtar to list this division in the future. Westports Holdings (WPRTS MK) is trading at a trailing/forward EV/EBITDA of 13.5x/12.7x and a P/B of 5.2x. The net assets for MMC's port & logistics division are RM7.2bn, according to the 2020 annual report (page 285). I think Mokhtar is getting a bargain for MMC at this price.
- The announcement gives MMC's board until the 15 July to decide on whether to proceed with the Offer or not. That could be an effective starting point, but I would expect the board to respond well before this date. Additionally, the timing of Malaysia's High Court granting an order confirming SCRs after shareholders have voted at an EGM, varies tremendously when analysing prior SCR deals. All told, I estimate this transaction could be wrapped up mid-October.
- I think this is a done deal and would expect shares to trade tight to terms. Assuming a mid-October completion, this may well trade up to ~RM1.94 on Monday, or a gross/annualised spread of 3.1%/9%.
(link to my insight: MMC Corp (MMC MK): Privatisation Offer From Syed Mokhtar)
Invesco Office J Reit (3298 JP) (Mkt Cap: $1.8bn; Liquidity: $30mn)
- The question is whether Invesco wants to save face at the corporate level, or whether they would rather not be saddled with those buildings at that ¥22,500/unit price has to be seen as a lower maximum probability.
- Travis thinks it its possible, perhaps even likely, that Starwood or Invesco has one more bump left in them. But success still requires passive to tender, AND for the opponent to give up, or for passive to tender a LOT of shares.
- One "saving grace" here is that because of that multi-day scare mid-deal, some who may have been reluctant to tender may tender. This could raise passive participation. Overall, Travis remains bearish. The odds at ¥22,500/unit, or ¥22,800/unit, don't seem great. And the odds of a Very Serious Bump From Here seem low. Small bump? Maybe. Big bump? Not so much.
(link to Travis' insight: Starwood Bumps Invesco Office Price to Match But STILL Not a Done Deal)
Link Administration Holdings (LNK AU) (Mkt Cap: $2.1bn; Liquidity: $8mn)
On the 27 May, Link announced it had received an Offer from KKR, in partnership with Domain Holdings Australia (DHG AU), representing an EV of $3bn for 100% of PEXA, or A$1.38bn for Link's equity stake. The proposal remained "open and capable of acceptance" until 5 pm on the 30 May. Link has now responded by announcing it would take PEXA public on with an enterprise value of A$3.3bn.
- Assuming an EV of A$3.3bn, I estimate an EV/EBITDA of 29.2x and 25.8x for FY21E and FY22E. Link said it would hold 47% - up from 44.18% currently - after the IPO, and after selling some of its stake, generating A$50mn in cash.
- I was inclined to sell shares subsequent to the announcement. I think the market will take the IPO news as a negative vs. an outright sale. Link will be transformed into a holdco, and a discount thereon. Even assigning a stock standard 25% holdco discount to my indicative NAV, Link should trade closer to $5/share.
(link to my insight: Link Admin (LNK AU) Goes IPO Route For PEXA Afterall)
EPS Holdings (4282 JP)(Mkt Cap: $0.7bn; Liquidity: $4mn)
Last week, the founder and Chairman of EPS announced an MBO to take the company private. In Another Too-Cheap MBO as Founder Takes Out EPS Travis discussed the details of the MBO and Tender Offer and noted that it was "too cheap." The stock traded briefly through terms at the open of trading on Monday 31 May - the first day it could trade freely post-announcement. Earlier this week, it traded briefly through terms on a spike, settled back, and then rose into the close.
- The bid is too cheap for what the company is. The Bidder knows this. He is getting it for nearly free. The Board doesn't seem to care much, but Boards are rarely composed of people who think about companies in financial terms.
- Travis thinks it is an interesting risk at terms. He thinks it is NOT interesting because the Company thinks the offer cheap. It does not think it too cheap. It thinks it appropriate and has recommended the bid to shareholders. Travis reckons it is interesting because someone else could make noise. But I view this as a low-probability outcome, unfortunately.
- There is not enough Cowbell in Japan.
(link to Travis' insight: EPS MBO Is Cheap. Too Cheap. But Be Careful Of Your Assumptions)
Sawada Holdings (8699 JP) (Mkt Cap: $0.4bn; Liquidity: $3mn)
J Trust Co Ltd (8508 JP) made waves in the past week, announcing on the 24th it had bought 5.09% of Sawada, announcing on the 26th it had reached 6.12%, and announcing on Friday 28 May after the close that it had reached 9.0% with 3.685mm shares. The shares rallied hard, from ¥940 to ¥1,050+ which was above the Tender Offer Price offered by Meta Capital/Upsilon Investment Partners. What J Trust has told the world in its filings about how and when it bought, and about its reasons for investment may tell you something about what to expect going forward. The possibility of J Trust launching a Tender Offer exists but there are LOTS of hurdles between now and then.
- Given how long it took to get approval for Tower to get approval to sell down, and given how long it has taken Meta Capital to NOT get approval to buy Sawada, I expect that the best story one can get out of the J Trust saga is not a tender offer for Sawada but J Trust buying a stake in Khan Bank.
- Given J Trust trades at fraction of its book value, Travis would not be inclined to believe J Trust will want to pay 2x book value to buy a stake in Khan Bank. But stranger things have happened.
- Travis stills thinks the outcome for Sawada holders will be positive. He is inclined to believe that there is substantially less juice here than there was 300 yen ago, and that it will take more time to achieve the next 30% than it took to get the last 30%. It is possible J Trust will buy more than its current 9% (or has bought more than its currently-reported 9% stake). If it bought half of volume last week, J Trust would today be at 17%.
(link to Travis' insight: Be Careful of Expectations on Sawada (8699))
On 19th April 2021, real estate funds managers Primewest Group Ltd (PWG AU) and Centuria Capital (CNI AU) announced plans to merge in a A$600mn cash-and-scrip deal. This transaction was structured as an Off-market Takeover bid by CNI for 100% of PWG Securities where PWG security holders will get A$0.20 in cash and 0.473 CNI Securities per PWG security. CNI has now announced they have extended the Offer Period by changing the Closing Date from 17th June 2021 to 24th June 2021. At the time of Janaghan Jeyakumar's insight Primewest (PWG AU): Centuria Offer Period Extended; Trading Wide, it was trading at a wide gross spread of 2.4%.
Travis expects Adani Power Ltd (ADANI IN)'s price is now higher than the Adani family originally wanted it to be when a Reverse Book Build was launched. It would have been a pretty picture had the shares stayed at Rs 60/share, and then the friendly shareholders in those funds tendered in at Rs 60-70/share. Travis reckons the situation is avoidable. If the shares were to drop sharply to the Rs 70-80 area, he would buy the dip. If the shares were to rise 10-15% to new highs, he would sell and walk away. The shares could get pushed higher the way many of the Adani Group company shares have been pushed higher, but he could not give a good reason why they should stay up there. In the meantime, Travis thinks the move in other Adani shares makes Adani Power a cheap asset for the family to own. The family could easily sell out some of the holdings in these several funds to generate monies to fund the acquisition. Link to Travis' insight: Not Much Time Left for Adani Power Delisting Offer.
Dutech Holdings (DTECH SP), a security product - safes - manufacturer, and S-chip, has announced a voluntary unconditional cash Offer from TSI Metals for S$0.40/share, in cash, a 60% premium to last close. TSI is a holding company wholly-owned by CEO, executive chairman, and director, Johnny Liu. Any dividends declared and paid will reduce the Offer price. Liu, via Spectacular Bright, holds 42.76%, which has given an irrevocable to accept the Offer and has also entered into a rollover arrangement which would be allocated shares in TSI. The SIC has already signed off on this arrangement. Willalpha, a vehicle owned by Liu Bin, Liu's brother, holds 15.79%, and has given an irrevocable to accept the Offer. This looks done. Liu does not intend to maintain the listing, nor does it intend to take any steps to restore the free float. Link to my insight: Dutech Holdings (DTECH SP): A Safe Bet.
In Kunlun Energy (135 HK) - Choose Your Fighter (With That One Neat Trick!), Travis flags a technical thing in that Kunlun Energy (135 HK)'s dividend is worth HK$2.85268/share, not HK$2.8041 as the RMB has been strengthening. IF Kunlun holders wish to do so, they can lock in a better dividend than the default HKD dividend of HK$2.8041 by shorting RMB vs HKD at the current level and electing in the election form which will be dispatched to shareholders as of 9 June to receive their dividends in RMB. That election has to be made by 25 June. If you have no opinion on the USDRMB rate over the next three weeks, I would lock it in now using an FX hedge.
After its first Offer was rejected by Asaleo Care Ltd (AHY AU) board, Swedish outfit Essity AB (ESSITYB SS) returned on the 17 February with an improved A$1.45/share proposal - up from $1.26/share - comprising $1.40/share in cash plus A$0.05/share of permitted dividends, which are expected to be fully franked. The record date for the ordinary dividend of A$0.03/share was the 16 March. The Scheme Doc was released on the 23 April, and Asaleo shareholders overwhelmingly (99%+) voted for the Scheme. Done & dusted. The implementation date is expected to be on the 1 July. The special dividend of A$0.02/share will be paid on the 21 June, with a record date of the 15 June. Link to my insight: Asaleo (ASX: AHY): Essity’s Offer Gets Up.
STUBS
I estimate Ecopro Co is trading at a 59% discount to NAV against a 12-month average of ~44%. Ecopro Co's 51% stake in Ecopro BM is worth around 220% of its market cap versus an average of 149% since Ecopro BM's listing in March 2019.
- Back on 6 November 2020, Ecopro Co announced that it would spin off its environmental solutions business into a separate company called Ecopro HN (383310 KS). The net asset value as at the demerger date (1st May) indicated a share price of ₩77,400 for Ecopro - or a market cap of ₩1.43tn - and ₩62,200 for Ecopro HN, and a market cap of ₩0.24bn. Ecopro Co was suspended on the 29 April and resumed listing on the 28 May. Shares promptly cratered ~40% to close at ₩53,400, or a market cap of ~₩0.988tn.
The current share price of Ecopro Co appears unsubstantiated - far too low. I would set up a Long Ecopro Co and Short Ecopro BM.
Link to:
my insight: StubWorld: What Is Up (Or Down) With Ecopro Co?
Douglas Kim's Trading Strategies for Ecopro Co & Ecopro HN Post Split
Del Monte Pacific (DELM SP) (DMPL) owns 87% of Del Monte Philippines (1575316D PM) (DMPI) which is looking to IPO this year. The IPO of DMPI will help to deleverage DMPL by about US$300m, assuming DMPI IPO at a conservative 12x P/E, which could lead to a much needed catalyst for further re-rating. Link to Zhen Zhou, Toh's insight: Del Monte Pacific HoldCo Trade - Potential 50% Upside from DMPI IPO.
M&A - EUROPE
On 31 May, Assicurazioni Generali (G IM) SpA launched a voluntary tender offer to acquire the 76.33 of Societa Cattolica Di Assicuraz (CASS IM) it does not already own. Generali will offer €6.75/share, cum dividend. In Generali/Cattolica: Voluntary Tender Offer, Jesus also reckons this Offer needs to be bumped.
TOPIC INCLUSIONS
M&A ROUND-UP IN APRIL
(link to my insight: (Mostly) Asia M&A: May 2021 Roundup)
LOCK-UP EXPIRIES
INDEX REBALS
JPX-Nikkei 400 is composed of common stocks listed in the First Section, Second Section, MOTHERS Market, and the JASDAQ Market of the Tokyo Stock Exchange. This is a free-float-adjusted market-value-weighted (capped) index composed of 400 constituents that are selected based on several factors including market capitalization, trading value, operating profits, and ROE.
- A periodic review is conducted by the Index providers, the JPX Group and Nikkei Inc, in August every year. This review will be conducted using the final business day of June as the base date. Quiddity provides quantitative research on pre-event basket strategies surrounding this Index Rebalance event and others. Below is a discussion on the latest adjustments required for the basket portfolio for the 2021 Rebalance based on May-end data.
(link to Janaghan's insight: JPX-Nikkei 400 Rebalance 2021: Pre-Event Basket Adjustments for May-End)
Partly inspired by the move on Bank Of Kyoto (8369 JP) discussed in Bank of Kyoto (8369) - A Deeply Discounted Holdco Which Will Likely Not Monetize and also in MSCI Japan BIG DELETE Post-Mortem - Trades To DO I took a look at the post-mortem on the MSCI Korea Semi-Annual Index Rebalance to see whether there were post-event trading opportunities still. Most of the changes were "expected". The ADDs and DELETEs performed as expected in the pre-event phase. They bifurcated somewhat in the post-announcement phase. That leaves some reversion trades to do. Link to Travis' insight: MSCI Korea Post-Mortem - Reversion Trades To Do.
FTSE TWSE Taiwan 50 Index Rebalance. As expected, Evergreen Marine Corp (2603 TT), Yang Ming Marine Transport (2609 TT), Wan Hai Lines (2615 TT), and AU Optronics (2409 TT) have been included in the index, while the deletions are Catcher Technology (2474 TT), Cheng Shin Rubber Ind Co., Ltd. (2105 TT), Wiwynn Corp (6669 TT) and Taiwan High Speed Rail (2633 TT). Innolux Corp (3481 TT), China Development Financial (2883 TT), Eclat Textile Company (1476 TT), Accton Technology (2345 TT), and Momo.Com Inc (8454 TT) have been added to the Reserve List. Link to Brian's insight: FTSE TWSE Taiwan 50 Index Rebalance: Shipping Stocks Clear the Deck.
KLCI Index Rebalance. As expected, MR D.I.Y. Group (MRDIY MK) has been included in the index replacing Supermax Corp (SUCB MK). This is a quick in/out for Supermax since it was only included in the KLCI at the last review in December. Link to Brian's insight: KLCI Index Rebalance: MRDIY Replaces Supermax.
HSI Index Rebalance Preview. Brian sees JD Health (6618 HK), Hansoh Pharmaceutical (3692 HK), Smoore International (6969 HK), Fosun International (656 HK) and Evergrande Property Services (6666 HK) as higher probability inclusions in the index, while there is a lower probability of JD.com Inc. (9618 HK), Nongfu Spring (9633 HK) and Xinyi Glass Holdings (868 HK) being included. Link to Brian's insight: HSI Index Rebalance Preview: Potential Inclusions in September.
FTSE China 50 Index Rebalance. As expected, there are 3 sets of changes to the index with Xiaomi Corp (1810 HK), Cosco Shipping Holdings Co., Ltd (H) (1919 HK) and Citic Ltd (267 HK) being added, and New Oriental Education & Technology Group (9901 HK), Evergrande Real Estate Group (3333 HK) and Geely Auto (175 HK) being deleted. Link to Brian's insight: FTSE China 50 Index Rebalance: Xiaomi's Inclusion Increases Turnover to Over 8%.
FTSE China A50 Index Rebalance. FTSE Russell has announced that as a part of the June review, Yihai Kerry Arawana Holdings (300999 CH) and Chongqing Zhifei Biological Products (300122 CH) will be added to the FTSE China A50 Index (XIN9I INDEX) replacing Offcn Education Technology (002607 CH) and Hengli Petrochemical Co.,Ltd. A (600346 CH). Link to Brian's insight: FTSE China A50 Index Rebalance: YKA & Chongqing Zhifei IN; Offcn, Hengli OUT.
HSCEI Sep 2021 Index Rebalance Preview. At the September review, we see JD Logistics (2618 HK) and Li Ning Co Ltd (2331 HK) being included replacing Shimao Property Holdings (813 HK) and Anhui Conch Cement Co Ltd H (914 HK). Innovent Biologics Inc (1801 HK), Bilibili Inc (9626 HK), and Xinyi Solar Holdings (968 HK) are close adds. Link to Brian's insight: HSCEI Sep 2021 Index Rebalance Preview: JD Logistics, Li Ning Are Potential Adds.
SET50 June Index Rebalance Preview. Sri Trang Gloves (Thailand) Public Company Limited (STGT TB) and IRPC PCL (IRPC TB) are high probability inclusions while VGI PCL (VGI TB) and Bangkok Commercial Asset Management (BAM TB) are high probability deletions from the index. Sri Trang Agro Industry (STA TB) is a lower probability inclusion and TOA Paint (Thailand) (TOA TB) is the corresponding deletion. Link to Brian's insight: SET50 June Index Rebalance Preview: Review Period Ends Today.
SSE50 Index Rebalance. The inclusions are Tongwei Co Ltd A (600438 CH), Shanxi Xinghuacun Fen Wine Factory Co (600809 CH), AECC Aviation Power (600893 CH), Zijin Mining Group (601899 CH), and China International Capital Corp (601995 CH). The deletions are China Railway Construction-A (601186 CH), Hongta Securities Co Ltd (601236 CH), The People's Insurance Company (Group) Of China Limited-A (601319 CH), Beijing-Shanghai High Speed Railway-A (601816 CH), and Shenzhen Huiding Technology (603160 CH). Link to Brian's insight: SSE50 Index Rebalance: 5 Changes; Another Inclusion for CICC.
KOSPI 200 Rebalance preview. In Looking Ahead to the KOSPI 200 Rebalance in November 2021, Douglas Kim reckons the additions could include F&F, Hyundai Autoever, Hansol Chem, Daou Technology (023590 KS), Hyundai Construction Equipment (267270 KS), Hyosung Chemical Corp (298000 KS), Seah Besteel (001430 KS), Hanmi Semiconductor (042700 KS).
OTHER M&A & EVENT UPDATES
- Boral Ltd (BLD AU)'s Target Statement is expected to be released next week in response to Seven Group Holdings (SVW AU) Offer.
- Not that it makes any difference to the outcome, Gulf Energy Development Public Company (GULF TB) has reduced the downstream offer for Advanced Info Service (ADVANC TB) to Bt120.93/share from Bt122.86/share. I'm sure why - have reached out to Gulf and Intouch. Ir appears the new number is based on the latest financial figures, up to 31 March.
- Car Inc (699 HK) has announced a compulsory acquisition notice.
MAFM bumps its Offer for Vitalharvest Freehold Trust (VTH AU) to A$1.295/share. As an aside, VTH "does not consider Roc's indication that it intends to overbid any further offer by MAFM by the equivalent of A$0.01 per unit" to be a legally binding offer. Not sure why VTH added that part about Roc, nor do I think it is their place to interpret the legalese of such a statement.
CCASS
My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions. These may be indicative of share pledges. Or potential takeovers. Or simply help understand volume swings.
Often these moves can easily be explained - the placement of new shares, rights issue, movements subsequent to a takeover, lock-up expiry, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.
Name | % chg | Into | Out of |
| Summit Ascent Holdings (102 HK) | 69.67% | Morton | Sun International |
| China Logistics Property Holdings (1589 HK) | 20.14% | DB | HSBC |
| Jiayuan International (2768 HK) | 12.33% | Zhongrong | Haitong |
| Feiyu Technology International (1022 HK) | 10.00% | CICC | Outside CCASS |
| Hopson Development (754 HK) | 11.97% | JPM | Outside CCASS |
| International Entertainment (1009 HK) | 18.99% | CS Wealth | Head & Shoulders |
| Fu Shou Yuan International (1448 HK) | 12.93% | Grand Cap | Evergrande |
| Source: HKEx | |||
The following large movement(s) concern recently listed companies, and therefore are (likely) lock-up related.
Name | % chg | Into | Out of |
| Central China Management Company Limited (9982 HK) | 19.60% | CCB | Outside CCASS |
| Pop Mart International Group Limited (9992 HK) | 10.45% | Citic | Outside CCASS |
| Source: HKEx | |||
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- Last Week in Event SPACE: Sembcorp, Milton, Toshiba, Dah Sing Bank, WH Group, 51job, Port Congestion27 Jun 2021
- Last Week in Event SPACE: Soho China, Toshiba, China Logistics, Invesco Office, Yantian's Backlog20 Jun 2021
- Last Week in Event SPACE: Toshiba, MMC Corp, Japan Post, China Logistics, Pershing Square, Hang Lung13 Jun 2021
- Last Week in Event SPACE: Sing Air, JD Logistics, China Mobile, Angang/Bengang, Link Admin, Xiaomi30 May 2021
- Last Week in Event SPACE: Japan Post Ins, Straits Trad., Invesco Office, Chong Hing, Toshiba, JD.com23 May 2021