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Last Week in Event SPACE:  Bingo Ind., Tokyo Rope, Pressance, Engineers India, Kuaishou Tech, SPACs

742 Views24 Jan 2021 06:48
SUMMARY

Last Week in Event SPACE ...

  • 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)

M&A - ASIA

Bingo Industries (BIN AU) (Mkt Cap: $1.7bn; Liquidity: $3mn)

Bingo confirmed an unsolicited, highly conditional, non-binding, indicative proposal, from funds advised by CPE, which includes Macquarie Group’s infrastructure arm Macquarie Infrastructure and Real Assets (MIRA), by way of a Scheme, with an indicative cash price of $3.50/share. The proposal also references a scrip alternative that remains under development, which would provide shareholders with the option of a mix of cash and scrip at a lower upfront price than a simple cash option. Conditions include due diligence and financing, with a minimum/maximum acceptance condition attached to the cash and scrip options.

  • $3.50/share is a 27.7% premium to last close, and a lifetime high. Coincidentally, when Cleanaway Waste Management (CWY AU)acquired Tox Free for A$670mn in early 2018, it paid a 27.5% premium to the 10-day VWAP. According to CapIQ, $3.50/share pitches Bingo at a punchy 52.9x and 19.5x forward PER and EV/EBITDA.
  • This is as yet, an unsolicited Offer - one that is priced at lofty valuations. Trading at a gross/annualised spread of 7%/18% assuming five months to complete, when factoring in DD. That looks tight for what is a non-binding Offer.

links to my insight:
Bingo Industries (ASX: BIN): Talking Trash
Bingo Industries (BIN AU): CPE/MIRA's Scavenger Hunt

Tokyo Rope Mfg (5981 JP) (Mkt Cap: $0.2bn; Liquidity: $6mn)

Nippon Steel Corporation (5401 JP) announced a Tender Offer that could raise its stake from 9.9% to 19.9% Japan-based wire rope manufacturer Tokyo Rope. The Offer Price is ¥1,500/share in cash and the bidder will be buying up to 1,625,000 shares in this Tender Offer. This is a hostile situation. NSC has stated that it is frustrated with Tokyo Rope's governance failures leading to poor business performance and the worsening of the company's financial soundness and they claim they want to make a change by raising their stake in the company. If we assume everyone other than NSC Tender their shares, the minimum fill ratio could be around 11% which is quite low.

  • The Tender Offer Price translates to a fairly attractive premium of 39% to today's closing price. It is also 77%, 110%, and 140%, respectively, are higher than the stocks average price for the last one-month, three-month, and six-month periods. The Tender Offer Price translates to EV/Rev(LTM), EV/EBITDA(LTM), and PBV multiples of 0.85x, 22.4x, and 1.19x, respectively, which are above the all the peer averages for both "Japanese" and "Other Country" Peers.
  • NSC has been buying in the market. HOWEVER, they are unlikely to be alone. Between 27th Nov and the time of the insight, approximately 40mn shares have traded at abnormally high volumes and that implies that there could be other parties interested in this situation.
  • The Tender Offer by itself is not very exciting based on potential pro-ration. The bare minimum is likely in the 11.5-12.0% range, but the practical minimum is probably closer to 20% because passive shareholders, corporate cross-holders, financial cross-holders, the ESOP and directors may choose not to tender into NSC's hostile bid. IF you think Tokyo Rope can find a White Knight, this could get very interesting. Otherwise, this may get too expensive very quickly from an arbitrage point of view. If NSC wins this at JPY 1500, it is not clear where the residual should trade. The stock would lose an element of takeover premium with NSC blocking the path for others.

links to:
Janaghan Jeyakumar's insight: Nippon Steel's HOSTILE Partial Tender Offer for Tokyo Rope: A Move to Mark Territory?
Travis Lundy's insight: New Money for Old Rope? Gaming Out A Hostile Partial Offer on Tokyo Rope (5981)

Zhuhai Holdings Investment (908 HK) (Mkt Cap: $0.4bn; Liquidity: $1mn)

Eight months after successfully completing a MGO, Zhuhai SASAC has returned with a pre-conditional privatisation by way of Scheme. The Offer price is HK$3.06/share, a 37.84% premium to last close, a 52.39% premium to the average closing price over the previous 30 trading days. The Offer price will not be increased. Pre-conditions include signs offs from NDRC, MoC, and SAFE. As an SOE is making the Offer, these approvals should be rubber-stamped.

  • Zhuhai SASAC indirectly holds 61.5% of shares out. Scheme shareholders comprise 549.6mn shares or 38.5% of shares out. Therefore the blocking stake a the Scheme Meeting is 49.6mn shares, or 3.85% of shares out. No single shareholder has declared such a stake. The headcount test applies as ZHI is Bermuda-incorporated.
  • A solid premium to last close and a life-time high - this is priced to complete. No other suitor will emerge. I'd buy up to around HK$2.92/share - or ~4.8%/~15.0% gross/annualised spread - assuming completion early-June. However, this is unlikely to be a particularly liquid arb situation.

(link to my insight: Zhuhai Holdings (908 HK): Zhuhai SASAC Reloads With Scheme Offer)

Pressance Corp (3254 JP) (Mkt Cap: $1.0bn; Liquidity: $9mn)

The previous Friday Open House (3288 JP) announced the results of the Partial Tender Offer (Tender Offer for 19.8815mm shares) for Pressance. Pro-Ration ended up at 60.92%. This was a LOT lower than Travis expected. He had originally expected half of Domestic Retail Investors and 89% of Foreign Active Holders to tender. I had expected Mr Yamagishi and his company "Pacific" to tender as per Tender Agreement announced at the time of the Tender Offer.

  • But Travis did not expect the following holders to tender: Domestic Passive (4.7mm shares), Foreign Passive (2.26mm shares), Financial and Corporate Crossholders (4.15mm) and Directors (0.47mm). It appears as if the following people did not expect to tender actually did tender: four of the four identifiable financial crossholders, four of the top five identifiable corporate crossholders, and half of the 180 others,
  • It is not clear whether the other crossholders tendered - their numbers may well be inside the group tender from brokers, or they may have tendered slightly different amounts than they held.
  • It appears as if the directors may have tendered 70% of their holdings; ALL the foreign active holders tendered their shares; 80% of the lendable passive holdings were tendered (i.e. 80% of foreign passive, and 80% of 50% of domestic passive (which strikes me as quite high)). Assuming all of the above, 60% of the domestic retail investor base would have tendered their shares.

(link to Travis' insight: Pressance Partial Tender - Almost EVERYONE Tendered)

Polytec Asset Holdings (208 HK) (Mkt Cap: $0.5bn; Liquidity: <$1mn)

Polytec announced a proposed privatisation by way of Scheme from Intellinsight Holdings Limited, a vehicle wholly-owned by Or Wai Sheun, Polytec's chairman. The Offer price is HK$1.50/share, a 61.29% premium to last close, and a 72.55% premium to the average closing price over the previous 30 trading days, and a decade+ high. The Offer price will not be increased. No dividend has been declared, nor is one expected to be declared during the Offer period.

  • The Offeror - Intellinsight Holdings Limited - holds 2,389.9mn shares of 53.84% of shares out. Excluding an additional 0.67% of shares out held by concert parties, leaves 2,019.1mn shares or 45.49% of shares out held by Independent shareholders.
  • Key Scheme conditions include at least 75% of Independent Shares voting FOR & not more than 10% of the votes attached to ALL the Independent Shares against. Therefore the blocking stake is 201.9mn shares, or 4.549% of shares out. No single shareholder has declared such a stake. No irrevocables have been given. The headcount test applies as Polytec is Cayman incorporated.
  • 0.5x P/B for a PRC/Macau property play is a total bargain. Yet Polytec has historically traded at a significant discount to book. No other suitor will emerge, and this is an impressive premium to the last close. You'd have to go back 1Q10 when it traded above terms. This transaction looks done. However, this is not a particularly liquid arb situation.

Japan Asia (3751 JP) (Mkt Cap: $0.2bn; Liquidity: $3mn)

Just over two months ago, Janaghan wrote on the MBO of JAG launched at JPY 600/share, asking the question Japan Asia (3751 JP) Management Buyout: Should There Be a BUMP? The leading question had an obvious answer. Yes. Renowned Japan activist Yoshiaki Murakami and the various entities from which he and his crew deploy capital thought the price too low, as soon became obvious. Last week, after accumulating near 20%, they announced their intention to conduct a competing Tender Offer at a 40% premium to Carlyle's, which was extended. There are still a few hurdles, but the price of the shares has long eclipsed the Carlyle bid. Now shares are trading above the indicative JPY 840/share bid.

  • At ¥840 to slightly above, this is a buy. At ¥885 it is probably a place to take profits. There may be some upside, but this situation is likely to stagnate in the short-term unless a different White Knight can be found.
  • At first glance, it is not clear there is a single White Knight, and this is why the intermediation of Carlyle was perhaps seen as beneficial. As a place to offload the two major lines and pay down the debt, that is perhaps reasonable.
  • This deal appears to be a situation where Murakami-san himself is playing at being the White Knight for minority investors, much like he was in the case of Kosaido. If he does not get it done at ¥840/share, that will probably end up being OK for him. His price is ¥685 and his marginal highest-paid price is probably ¥820 or so. If a White Knight comes in at ¥850 to take the place of Yamashita-san and Carlyle, that will probably also be OK. The goal here is to make some money, and make other people look bad. Travis thinks it worth trading the range. He would be very aggressive to buy at ¥840 or just above.

(link to Travis' insight: Murakami Fund's Tender for JAG (3751): May Be Rangebound Near-Term)

Engineers India (ENGR IN) (Mkt Cap: $0.7bn; Liquidity: $3mn)

On the 9th of November, the board of ENGR made an announcement that it would consider at the board meeting to take place 3 days hence, theretofore for the purposes of, inter alia, considering and approving the Q2 financial results, a buyback of shares. There were no details. After the board meeting three days later, they announced that the plan was to propose a buyback of 69,869,047 shares at a price of Rs 84/share, which was effectively the maximum legal amount which could be spent on a buyback due to the statutory limit being 25% of the aggregate of the fully-paid-up share capital and the free reserves. It was 11.06% of shares out. They proposed a postal ballot which the ran from 21 Nov to 20 Dec. Shareholders approved. They set a 1 January record date.

  • Record Date was 1 January. Those who held then can tender. Those who did not, cannot. Shares have spent most of the last ten years WELL above the Tender Offer Buyback Price. There is a chance that a large number of shareholders do not tender.
  • If only 30% of shareholders tender (and fully tender their excess), the resulting pro-ration is likely to be above 35%. If everyone tenders to the full extent, pro-ration will be 10.6% for most shareholders.
  • With a 10% premium to last trade, shareholders who want to keep their position and believe everyone will tender should buy 10-12% of their current position. If one believes only 30% of shareholders are likely to tender, then shareholders should buy 37% of their existing position and tender the shares they held as of 1 January. If the shares go higher than Rs 84 by the end of the Tender Offer, that is a high quality problem and one may sell.

(link to Travis' insight: Hefty Engineers India Buyback Tender - Worth The Arb If You OwnCh)

Zhejiang New Century Hotel Management Group (1158 HK) (Mkt Cap: $0.6bn; Liquidity: <$1mn)

ZNCH announced a pre-conditional Offer from a vehicle co-owned by Sequoia China and Ocean Link. The Offer price is HK$18.15/share, a 23.9% premium to last close, and a 20.8% premium to the average closing price over the previous 30 trading days. The Offer price will not be increased. ZNCH has 280mn shares out, comprising 70,000,000 H shares (25% of shares out), 159,659,640 domestic shares (57% of shares out), and 50,340,360 unlisted foreign shares (18% of shares out). Sequoia China/Ocean Link currently hold no shares.

  • CTrip, a pre-IPO investor, with 14.83mn H shares, has given an irrevocable supporting the Offer, but will NOT tender. On account of a special shareholder arrangement, CTrip is deemed to be an Offeror Concert Party and therefore does not form part of the Independent H Shareholders. GreenTree, a pre-IPO investor, with 13.87mn H shares has given an irrevocable supporting the Offer and will also tender. GreenTree forms part of the Independent H Shareholders.
  • The pre-conditions, which cannot be waived, include approvals from an anti-trust review under the Anti-Monopoly Law of the PRC, and SAMR.
  • This appears an okay deal. The Pre-Conditional Long Stop date is the 31 May 2021, but these approvals should be completed well before. Merger by Absorption transactions are typically wrapped up in around four months.

(link to my insight: Zhejiang New Century (1158 HK): Pre-Conditional Offer)

Think Childcare (TNK AU) (Mkt Cap: $0.1bn; Liquidity: <$1mn)

On 16 November 2020, Australia-based Childcare company Think Childcare (TNK AU) received a Non-binding Indicative Proposal at an Offer Price of A$1.35/share from the PE arm of Alceon Group. A week later, TNK received a competitive bid at an Offer Price of A$1.75/share from Busy Bees Early Learning Australia. Busy Bees has now revised their competitive bid to A$2.10/share - a 20% bump from the previous bid level.

  • This is still a non-binding Deal and it requires the completion of satisfactory due diligence. Initially, a period of one month was allocated for Alceon's Due Diligence (16th Nov to 18th Dec 2020). Based on TNK's update on 21st December 2020, TNK had already started facilitating Due Diligence with Busy Bees.
  • The latest Offer Price of A$2.10 appears to be fair from a fundamental perspective. Unlike the previous bids from both parties, the latest Offer Price pf A$2.10 translates to a PER(NTM) of 14.6x which is clearly higher than the averages for both local and global peers. This Offer Price translates to a very attractive premium of 68% to the undisturbed price of A$1.25 on 15th November 2020.
  • Janaghan expects TNK shareholders to receive at least A$2.10/share at the end of this competitive situation. If Alceon turns friendly, TNK shareholders will get A$2.10/share and this could become a simple rate-of-return trade. If Alceon turns hostile, TNK shareholders could possibly get more. BE LONG or BUY at A$2.00.

(link to Janaghan's insight: Think Childcare (TNK AU): Bigger Bid by Busy Bees)

HKC Holdings (190 HK) (Mkt Cap: $0.5bn; Liquidity: <$1mn)

PRC property developer HKC announced a privatisation offer by way of a Scheme from the controlling Oei family. The offer price of $8/share is a 120.39% premium to last close and around an eight-year high. The Offer price will not be increased. An interim dividend of HK$0.13/share has been declared and will NOT be deducted from the cancellation price. Disinterested Scheme shares total 117.16mn or 22.93% of shares out, therefore the blocking stake at the court meeting will be 2.293%. No single shareholder has such a stake. The headcount test applies as HKC is Bermuda incorporated.

  • I estimate a P/B of 0.32x under the offer compared to its five-year average of 0.22x. The average/median for a peer basket - comparables were lifted from the MGO composite doc back in April 2015 - are 0.32x/0.18x. HKC has traded at a 56% discount to the peer average on a P/B metric over the past five years.
  • Scheme docs are invariably delayed in Hong Kong. With FY20 results due out in March, my guess is that the Scheme doc will be delayed to incorporate those numbers. I estimate this could be wrapped up in mid-May. The long-stop date is the 30 September 2021.
  • 0.3x P/B for a PRC property developer is a steal. Yet HKC has perennially traded at a significant discount to book. No other suitor will emerge, and this is an impressive premium to the last close. This transaction looks done. I'd buy here ~$7.56/share - around a 7.5%/26.2% gross/annualised spread, assuming completion mid-May and factoring in the interim dividend.

(link to my insight: HKC (190 HK): Take-Private Offer By Way Of A Scheme)

Himaraya Co Ltd (7514 JP) (Mkt Cap: $0.1bn; Liquidity: <$1mn)

The Japanese sports retail market has traditionally been dominated by four big retailers, Alpen Co Ltd (3028 JP), Xebio Holdings (8281 JP), Mega Sports (owned by Aeon Co Ltd (8267 JP)) and Himaraya. With Mitsubishi Corp (8058 JP)'s financial and supply chain support, Himaraya overtook Mega Sports a few years ago but Himaraya’s sales have since contracted and Mitsubishi gradually reduced its stake while still retaining its core supply role.

  • Mitsubishi will now divest all shares and end its supply relationship too, leaving Himaraya open to takeover.

Rivera Holdings (281 HK) (Mkt Cap: $0.2bn; Liquidity: <$1mn)

Rivera, an investment holding company, which occasionally dabbles in property development and investment in Hong Kong, Macau, and China, announced a proposed privatisation by way of a Scheme. Scheme shares will be cancelled in exchange for $0.65/share cash, a 62.5% premium to last close. The Offer Price will not be increased. The Offeror is an unlisted vehicle owned as to 66% by Hsu Feng, 17% by Albert Tong, and 17% by Charles Tong, all of whom are directors. The headcount test does not apply as Rivera is Hong Kong incorporated.

  • Of interest is Rivera's follow-up announcement in which the Stock Exchange has reached a decision that Rivera has "failed to carry out a business with a sufficient level of operations and assets of sufficient value".
  • This transaction looks done. I'd buy here - $0.61/share - around an 6.6%/19.2% gross/annualised spread, assuming completion early June. However, this is not a particularly liquid arb situation.

(link to my insight: Rivera (281 HK): Scheme Or Face Delisting)

In Joban Kaihatsu MBO Price Bumped, Tender Extended: Still Not Rolling In Clover, Travis discussed the bidder had raised its bid for Joban Kaihatsu (1782 JP) to ¥9,000/share from ¥7,800/share, and extended the Tender Offer another 11 days to 9 February. This is a trade for people committed to activism for the sake of activism, and profits. If the Tender Offer Price does not go higher, and the TOB is not successful, Travis expects that the shareholder base may seek to boot the CEO and perhaps the other directors, but it is not clear to me what the upside would be in terms of shareholder returns after that.

After shares of both LG Electronics (066570 KS) and LG Corp (003550 KS) bounced mid-week, in Will LG Electronics Finally Sell or Discontinue the MC Business & Fix Its Achilles Heel?, Douglas Kim discussed the additional value accretion to LG Electronics if the MC business unit was discontinued.

The Composite Doc is out for the proposal for China Zhongdi Dairy (1492 HK). The first close is the 8 February. Compulsory acquisition is afforded if the Offeror - Inner Mongolia Yili Industrial Group (A) (600887 CH) - secures 90% or more of the disinterested Shares. The irrevocables total 93.62%. The Offeror has stated its intention to avail itself of its powers of compulsory acquisition. Done deal. Link to my insight: Zhongdi Dairy (1492 HK): Doc Out. Compulsory Acquisition Afforded.

EVENTS

TSE Market Structure & Major Index Revision

Just over two years ago, the FSA and TSE set themselves on a journey to "Review" and then revise the "TSE's Cash Equity Market Structure". This process promises significant changes to the major benchmark index for public equities in Japan. That would affect futures markets, options markets, ETFs, passive funds which track the major domestic indices, and not least, a bunch of companies. Unfortunately, there has been little new, and things have progressed quite slowly. Building consensus among people who have received guidance on what the results of their "study" should be seems to take longer than it should. And the fact that there has been no Official Japan effort to accelerate the content of the revisions to the Corporate Governance Code, or accelerate consideration of what might happen to hundreds of smallcap stocks which will be affected seems odd.

  • So what's new? Now we have a timeline. This new timeline and the comments which come out of the Public Comment Period for the Second Revision will make waves in Japan. Most foreign investors will ignore the whole thing, as they should. But people who care about impact on benchmarks should pay attention to the details.
  • This is still much ado about nothing. Unless existing large holders decide to change the benchmark of their holdings (i.e. GPIF changes the benchmark of its TOPIX portfolios to be 90% TSE Prime and 10% TSE Standard), it means there will be a slow burn impact. No matter what happens, there will be less stock borrow in the bottom 500 names of what is now TOPIX starting in 2023.
  • Unless the changes to the Corporate Governance Code are dramatic (and so far, the comments, while seemingly well-meaning towards minority shareholders in the Interim Report of Review of Minority Shareholder Protection or Other Framework of Listed Companies with Controlling Shareholders or Quasi-Controlling Shareholders (English), do not suggest enough changes to make Japan have materially better governance to minorities), it will not encourage foreign investors to buy more Japan.

(link to Travis' insight: TSE Market Structure & Major Index Revision: Still Much Ado About Nothing)

Singapore Exchange: Asia’s Future SPAC Hub

In my insight Virtual IPOs/Direct Listings: Uninhibited Price Discovery on the 29 November last year, I mentioned a white paper on special purpose acquisition company (SPAC) may be issued by the SGX in the first half of the following year. Last week the Business Times reported that a consultation could be launched by the SGX as early as this quarter.

  • SPACs, or blank-check companies, racked up ~US$80bn in the US in 2020. Once listed and cashed-up, SPACs target investment acquisitions or mergers, providing an alternate back-door listing opportunity for companies. In effect, SPACs synthetically combines a credit instrument with equity upside.
  • SPACs are non-existent in Asia. SGX has a vested interest in a first-mover advantage in SPAC listings. It has suffered a spate of delistings, and it is evident with the listing of Bridgestone, shortly to be followed by two Asian-focused SPACs, revenue opportunities are bypassing the bourse.
  • Often the disinclination to introduce change is due to an absence of public market sophistication or deep ecosystem. Sometimes it boils down to simply maintaining the status quo. My discussions with the SGX, with respect to SPAC, suggest it is the absence of an entrenched ecosystem. The SGX should make amends to educate the masses and take the lead on SPACs in Asia.

(link to my insight: Singapore Exchange: Asia's Future SPAC Hub)

M&A - EUROPE

On 18 January Akzo Nobel NV (AKZA NA) made a non-binding proposal to acquire Tikkurila Oyj (TIK1V FH) for €1.4 billion, at €31.25 per share. The offer is 13% higher than that made by PPG on 5 January. Tikkurila's shares closed at €32.55 (at the time of Jesus Rodriguez Aguilar's insight Akzo Nobel Tops PPG's Offer for Tikkurila), 16.5% higher than the prior trading session and 4.1% above Akzo Nobel's non-binding proposal. Jesus is long.

WEEKLY H/​A MONITOR

This week saw a gentle rebound in Quiddity H/A Share Recommendations (mixed long/short the spreads). Spread momentum slowed and volatility in H names remains high. Volatility in H/A spreads remains high with several spreads getting whipped around as the Hs themselves get whipped around (some led by their A, obviously).

  • The National Team / Southbound AGAIN bought the Trump EO names. This was most significant in SMIC (981 HK) but the three industrials also gained. Airlines weakened in H space and in H/A spread for the second week after Air China Ltd (H) (753 HK) was put on the OFAC list. CNOOC Ltd (883 HK) which had been put on the OFAC list was confirmed by both MSCI and FTSE late this past week. Both will delete the name on 26 January at the close.
  • Watch for more MSCI and FTSE announcements shortly. Theoretically, OFAC still owes everyone an updated SDN list with subsidiaries, but the current list hasn't been changed since 8 January. Maybe Joe Biden has other things to do.
  • Consumer sector volatility continues to surprise, both in the Hs and the spreads. Financial Hs continue to gain strongly, as bank earnings surprise to the upside and mainland volumes and increasing margin balances help brokers.

INDEX REBALS

Kuaishou Tech IPO: Fast Entry Possibilities into MSCI, FTSE, China 50, HSCEI, HSTECH, HSCI. The expected US$50bn valuation would give the company a higher market cap than its listed peers, Bilibili Inc (BILI US) at US$43bn and iQIYI Inc (IQ US) at US$16bn. In Kuaishou Tech IPO: Fast Entry Possibilities into MSCI, FTSE, China 50, HSCEI, HSTECH, HSCI and Kuaishou Technology Pre-IPO - Index Implications, MSCI, FTSE and HSI Indices, Brian Freitas and Sumeet Singh break down the possibility of the stock being included in the MSCI Standard index, the FTSE All-World index, the FTSE China 50 index, Hang Seng China Enterprises Index (HSCEI INDEX), Hang Seng Tech Index (HSTECH INDEX) and the Hang Seng Composite Index.

PTT Oil and Retail (OR TB)'s shares will be offered to general investors between 24 January and 2 February with final pricing to be announced on 3 February and shares should begin trading mid February. Using prices from the close of trading on 15 January, the stock should be included in the SET50 index at the close on its third day of trading, but the final decision is dependent on PTT Oil's closing price on its first trading day and also on the performance of the current constituents of the SET50 index and the Thailand SET Index (SET INDEX). There is a medium probability of the stock getting Fast Entry into the FTSE GEIS and a low probability of being included in the MSCI GIMI. Link to Brian's insight: PTTOR and Fast Entry Index Inclusion: Fuel Up for SET50; FTSE Close; MSCI Far.

S&P Dow Jones Indices will announce changes to the S&P/ASX 200 (AS51 INDEX) as part of the March index review on 12 March and the changes will be effective after the close of trading on 19 March. The data cutoff for the March review is 26 February. Using market data to the close of trading on 15 January, Brian expects PointsBet Holdings Pty Ltd (PBH AU), De Grey Mining (DEG AU), and Codan Ltd (CDA AU) to be added to the index, replacing Service Stream (SSM AU), Tassal (TGR AU) and Gwa Group Ltd (GWA AU). Pilbara Minerals (PLS AU) and Champion Iron (CIA AU) are close adds while Bravura Solutions (BVS AU) and Smartgroup Corp (SIQ AU) are close deletes. Link to Brian's insight: ASX200 Index Rebalance Preview: Three Potential Changes for Now; Could Increase to Five.

FTSE GEIS Index Rebalance Preview. Brian expects Nongfu Spring (9633 HK) and Ming Yuan Cloud Group (909 HK) to be included in the FTSE All-World index plus a lot of changes in stocks migrating from the All-Cap to All-World index and vice versa. The March review will also see STAR Board stocks being included in the FTSE Emerging All Cap China A Inclusion Index which will result in passive buying from ETFs like Vanguard Emerging Markets Stock Index Fd (VWO US). Another big change will be move in Alibaba's inclusion in the index from Alibaba Group (BABA US) to Alibaba Group (9988 HK). Link to Brian's insight: FTSE GEIS Index Rebalance Preview March 21 - China.

MSCI Feb 2021 Index Rebalance Preview. Stocks Brian expects to be added to the MSCI China and MSCI Standard indices are Nongfu Spring (9633 HK), Li Auto Inc. (LI US), Ming Yuan Cloud Group (909 HK), China Resources Mixc Lifestyle Services (1209 HK), JCET Group (600584 CH), Avic Aviation High-Technology (600862 CH), China International Capital Corp (601995 CH), Weimob Inc. (2013 HK), 21Vianet Group (VNET US), Daqo New Energy Corp Adr (DQ US), Ever Sunshine Lifestyle Services (1995 HK), Jiumaojiu (9922 HK) and Yihai Kerry Arawana (300999 CH), while he expects Hebei Construction Group Co (1727 HK) and Luye Pharma (2186 HK) to be deleted. Outside of China, he sees Aneka Tambang Persero (ANTM IJ) and Nan Ya Printed Circuit Board (8046 TT) being added to the index, while he expects Ace Hardware Indonesia (ACES IJ) and Standard Foods (1227 TT) to be deleted. Link to Brian's insight: MSCI Feb 2021 Index Rebalance Preview - Busier Than Usual.

FTSE TWSE Taiwan 50 Index Rebalance Preview. At the current time, Brian sees Airtac International (1590 TT) being included in the index and Sinopac Financial (2890 TT) being excluded. Evergreen Marine Corp (2603 TT) looked like it would be included in the index for a while before the big retracement in the stock that has taken it out of the inclusion zone. Passive buying on Airtac International (1590 TT) is estimated at 0.88 days of ADV while the impact of passive selling on Sinopac Financial (2890 TT) is much higher at 2.56 days of ADV. Link to Brian's insight: FTSE TWSE Taiwan 50 Index Rebalance Preview - One Pair of Changes Expected.

NIFTY50 Index Rebalance Preview. There are 3 stocks that meet the criteria for inclusion: Tata Consumer Products (TATACONS IN), Icici Lombard General Insurance Company (ICICIGI IN), and Info Edge India (INFOE IN). The three lowest-ranked stocks in the index are Gail India Ltd (GAIL IN), Indian Oil Corp (IOCL IN), and UPL Ltd (UPLL IN). Brian sees a high probability of Tata Consumer Products (TATACONS IN) being included and Gail India being excluded, and a lower probability of Icici Lombard General Insurance Company (ICICIGI IN) being included and Indian Oil being excluded. Info Edge's average free float market cap is less than 1% lower than Icici Lombard - can get close going into the tail end of the review period. Link to Brian's insight: NIFTY50 Index Rebalance Preview - Nearing The End of the Review Period.

LQ45 Index Rebalance Preview. Stocks that could be included in the index are Bank Brisyariah (BRIS IJ), Kimia Farma Persero (KAEF IJ), Timah Persero (TINS IJ) and Pp London Sumatra Indones (LSIP IJ), while stocks that could be deleted from the index are Sri Rejeki Isman (SRIL IJ), Summarecon Agung (SMRA IJ), Wijaya Karya Persero (WIKA IJ) and Jasa Marga (Persero) (JSMR IJ). Link to Brian's insight: LQ45 Index Rebalance Preview: Potential Candidates for Change.

In SET50 Index: Change to Free Float Weighting In the Works?, Brian looks at Thai stocks that would be affected by the changes and the impact of passive fund trading due to changes to free float weightings.

STAR Board - STAR50 Index Rebalance Preview. For the March review, Brians sees Cambricon Technologies Corp (688256 CH), Qi An Xin Technology Group (688561 CH), Shanghai Junshi Bioscience (688180 CH), Trina Solar Co Ltd (688599 CH), and Farasis Energy Gan Zhou (688567 CH) being included in the index. He expects Longyan Zhuoyue New Energy Co (688196 CH), Suzhou Tztek Technology Co-A (688003 CH), Beijing Seeyon Internet So-A (688369 CH), Tianjin Jiuri New Material-A (688199 CH), and Fujian Forecam Optics Co Ltd (688010 CH) to be deleted from the index to make way for the inclusions. One-way turnover is around 10%. Link to Brian's insight: STAR Board - STAR50 Index Rebalance Preview: +Adds/-Deletes = +24%.

CONTINGENCY VALUE RIGHTS

A contingent value right, or CVR, is a type of derivative, akin to a call option, whose value is based on some future event(s) occurring. CVRs certainly have their attractions, particularly to asset acquirers. However, as discussed by Robert Sassoon in MergerTalk: Contingency Value Rights - A Track Record Found Wanting, there is a body of evidence that demonstrates that recipients rarely benefit. While their usage has become more prevalent in Biopharma transactions in recent years, CVRs bring to mind Samuel Beckett’s iconic play, Waiting for Godot. How so? Just as Godot never arrives, for many CVR recipients, the hoped-for payout rarely arrives.

OTHER M&A & EVENT UPDATES

  • Cape Ann has exited China Machinery Engineering (1829 HK) altogether. Another nudge to the deal.

  • WAM Capital Ltd (WAM AU) has bumped its Offer for amaysim Australia (AYS AU) to 1 new WAM share for every 2.675 AYS share; or A$0.70/share cash per share, from 1 new WAM share for every 2.7 AYS share; or A$0.695/share cash per share. AYS' largest shareholder, Longfrist with 19.19%, supports WAM's Offer.

  • Bloomberg is reporting that Blackstone Group Inc., ESR Cayman Ltd., and JD Logistics Inc. are among bidders for control of China Logistics Property Holdings (1589 HK). Meituan (3690 HK) is also reportedly in the mix.
  • The Wipro Ltd (WPRO IN) buyback Tender Offer results are out. As expected, the pro-ration for institutional shareholders was low. It was going to be low. There was no way out of it.
  • Evergrande Real Estate Group (3333 HK) announced that it would early redeem the HK$17bn or so left over of the HK$18bn of Feb 2023 maturity 4.25% convertible bonds. So it is buying back 4.25% HK$ CBs with a conversion price way above current price. Helpfully, this means almost nothing.
  • Nikkei reports that the Mitsui Fudosan (8801 JP) Tender Offer for Tokyo Dome Corp (9681 JP) has succeeded, which is not that much of a surprise.
  • MSCI has announces its treatment of CNOOC and the fact that it was added to the OFAC List on 8 January. It has announced that CNOOC Ltd (883 HK) will be deleted from MSCI ACWI and MSCI China All-Share indices as of the close of 26 January.

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

Wai Yuen Tong Medicine Holdings (897 HK) 51.75%MSUBS
Universe Intl Hldgs (1046 HK) 51.14%SilverbricksKingston
Source: HKEx

The following large movement(s) concern recently listed companies, and therefore are (likely) lock-up related.

Name

% chg

Into

Out of

Raily Aesthetic Medicine (2135 HK) 54.79%SoochowOutside CCASS
Source: HKEx
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