Last Week in Event SPACE: China Youzan, Mcdonald's, Beijing Jingneng, Ricoh, Melco Resorts, LG Corp
Last Week in Event SPACE ...
- The pre-conditional Scheme for China Youzan Limited (8083 HK) is a precursor to in-specie-ing, and subsequently listing Youzan Technology on Hong Kong's mainboard.
- Expect an ongoing uptake of the share sale by Mcdonald's Corp (MCD US) in Mcdonald's Holdings Co Japan (2702 JP), and expect more shareholder pressure to list on TSE1/TSE Prime.
- There is something inherently wrong with this two-step, Merger by Absorption process as it applied to Beijing Jingneng Clean Energy (579 HK). When you have 97.9% of a share class voting FOR a delisting AND 80.22% tendering, and it still fails, something is not right.
- Ricoh Company Ltd (7752 JP) kicks off its well-flagged big buyback. It is not clear that there would be a lot of unwind pressure among active investors. This could get squeezy.
- US gaming stocks are on a tear vs. Macau gaming plays. And Melco Resorts & Entertainment (MLCO US) is unjustifiably being towed along with it.
- Whitebox calls on LG Corp (003550 KS) to abandon its proposed spin-off and establish a corporate governance committee – one comprised of truly independent directors with minority shareholder representation.
- Management launches an MGO for IGNIS Ltd (3689 JP). It's up 63% vs last but that doesn't look overly generous given management-forecast growth rates.
- Think Childcare (TNK AU) is trading well through the terms of a non-binding deal up 50+% from the first one launched.
- Matsumotokiyoshi Holdings Co., Ltd. (3088 JP) and Cocokara Fine (3098 JP) announce their merger and it is something special. Travis wrote last weekend and the market figured it out early with the stock up 17% on the week (it opened up 9% on Monday, the rest is gains since).
- 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
China Youzan Limited (8083 HK) (Mkt Cap: $6.5bn; Liquidity: $37mn)
China Youzan, a provider of e-commerce and payment solutions for merchants, has announced a pre-conditional Offer by way of a Scheme to take its GEM-listed shares private, then list 51.7%-held Youzan Technology on Hong Kong's mainboard. Shareholders are offered HK$0.1352/share in cash plus 0.05077265 Youzan Technology shares for every China Youzan share held. All in, the indicative Offer price is HK$2.3088/share, a 30.2% discount to last close. China Youzan is up 283% in the past year, and 44% YTD prior to the offer. The Offeror - China Youzan's CEO Zhu Ning - will not increase the Scheme Consideration and does not reserve the right to do so.
- The cash/scrip is split $0.1352/$2.1736 or 5.85%/94.15%. The scrip portion value was extrapolated out by an independent valuer JLL, using China Youzan's share price on the 30 November 2020, then stripping out the estimated value of the payment ops - those ops excluding Youzan Tech. These calcs backed out a fair value for Youzan Tech of RMB35.73/share, or an implied EV/sales of ~34x, roughly in sync with peers at the time. Given China Youzan's ~42% share price gain since that assessment, the implied EV/sales is now at ~48x versus 32x for peers.
- Is the offer fair? Yes. The ratio of the in-specie distribution of the shares in Youzan Tech is in line with the control ratio. As this makes up ~94% of the Scheme consideration, arguably the Scheme is fair. Additionally, an independent valuer compares four payment companies and extrapolates a fair value for the rump, which is "neatly" in line with the cash component.
- By buying China Youzan, you are simply buying the Youzan Tech IPO at an Implied EV/sales multiple. I would avoid the stock. Valuations have exceeded what I and the independent valuer consider is a fair value. Shares were off 13.3% since the announcement at the time of my insight. I'd look to re-enter if this closes in on the implied fair value using peer multiples, or ~HK$2.20/share. China Youzan is shortable. I do, however, expect the Scheme to get up.
(link to my insight: China Youzan (8083 HK): Proposal Towards Relisting Youzan Tech)
Mcdonald's Holdings Co Japan (2702 JP) (Mkt Cap: $6.5bn; Liquidity: $25mn)
In its 2020FQ2 earnings last July, Mcdonald's Corp (MCD US) said it's the right time to gradually reduce the ownership stake in the market in Mc D J. On 20 August, MCD announced that it had sold a bit over 3% of McD J, selling 4.2mm shares at ¥5340/share on 19 August 2020. On 20 November 2020, they announced they had sold another 4,000,000 shares at ¥5370/share on 19 November. This past Monday, another tranche of 4,000,000 shares was transacted at ¥5280/share. It is likely McDs US selling down more. That would leave McDs with 40.82%, which is more done than not. And it leaves the setup to be quite favourable to an application to move from JASDAQ to TSE1.
- Travis Lundy still thinks this a decent TOPIX inclusion pre-event bet. They meet all the criteria. The caveat is, still, whether new management will have the will to move to TSE Prime and whether they care enough to adopt the slightly stricter Corporate Governance Code rules of TSE Prime vs TSE Standard.
- Nonetheless, the company has a tailwind in revenues, and in OP, and the first month of the year makes the forecast OP gain of 2.3% (against net revenue expected 3.9%) look a little low-balled. At 15x EBITDA and 35x earnings, it is not inexpensive, but it is not outlandish for restaurants, many of which don't make much money in Japan.
- Actionability is somewhat limited, but it is a stock to keep on one's radar - buy dips and keep a low beta hedge on it. Upside to earnings could come on decent vaccine take-up, new inbound travel, etc. But even with covid-19 the company has performed admirably.
Beijing Jingneng Clean Energy (579 HK) (Mkt Cap: $2.1bn; Liquidity: $3mn)
80.22%. That's the only figure that matters. Jingneng joins Harbin Electric Co Ltd H (1133 HK) as the second Merger by Absorption transaction to fail on account of the tendering condition. 80.22% of the total issued H Shares held by the Independent H Shareholders, tendered. 85.8% of independent shares tendered into the Harbin Offer by the 60th day, and the Offer was subsequently, and unprecedently, extended (& then failed). Huaneng Renewables Corp H (958 HK) received 90.8% on the 60th day - therefore the Offer was declared unconditional as to acceptances - but the Offer was still subject to approvals from NDRC and MOFCOM, and the registration of SAFE approval - and was also granted an extension by the SFC. With less than 90% tendered AND with approvals/registration with Beijing SASAC, NDRC, and BAFE outstanding, the Offer for Jingneng was not extended.
- The rules need to be reviewed for PRC-incorporated companies. There have only been five PRC-incorporated take-private deals, that I’ve seen over the last 10 years, which involved a Scheme-like vote AND a 90% tendering condition. Only three of those have now got up. Technically, it's only two as the tendering for Shanghai Forte didn’t get to 90%, but they could waive that condition back then.
- The announcement mentions shares tendered will be returned within 10 days. In Hong Kong, shares tendered into an Offer must be done outside of CCASS. For Harbin, The Offer lapsed on the 19 July 2019. and tendered shares returned to CCASS on the 24 July. That included the weekend, so just three business days. Volume spiked again on the 25 July. New World Dept Store China (825 HK) also provides a comparative study. 83.9% of NWD's Offer shares were tendered into an Offer in 2017, falling short of the 90% acceptance condition. The deal failed on the 28 August 2017 and shares returned to CCASS on the 5 September, or six business days.
- There was selling pressure expected on the stock, in two phases - the day following the fail, and when shares are returned. However, Jingneng were trading cheap - at a trailing/forward PER of 7.4x/6.5x against its five-year average of 6.3/5.8x. Jingneng is also down year-on-year versus windpower plays and a basket of peers. This was a clear buy below $1.90 - a price which would match its long-term forward PER (which is low, considering that peers multiples have increased).
- UPDATE: CCASS shows tendered shares have now returned to broker accounts. Trading will be hectic on Monday.
(link to my insight: Beijing Jingneng (579 HK): And That's a Fail)
Ricoh Company Ltd (7752 JP) (Mkt Cap: $8.2bn; Liquidity: $32mn)
Ricoh has announced it would launch its buyback, of up to 145,000,000 shares (20.02%) spending up to ¥100 billion. Once the buyback is completed, the company will retire the repurchased shares PLUS another 20,000,000 shares. It's a BIG buyback. The buyback started on the 4 March and goes for a year. ¥100bn out of ¥700bn market cap at the announcement, about 30% of Real World Float. 100mm shares is 12.1% of ADV and 17-19% of eligible buyback volume every day for a year. The BOJ is likely to be a buyer of 10-15mm shares over the next year too.
- It has been relatively well flagged, with explicit hints as far back as Nov 2019, and explicit plans from almost a year ago. The decision to go ahead and spend the cash tells you that the far side of the Valley of the Shadow of COVID is now in sight, and the company is confident of its plan to come out the other side.
- Accretion to EPS is non-negligible, but if cross-holders all sell, that means the overhang could be large enough that the exit route for speculators would be to sell to new long-term active holders a ways down the road. They would want to see growth, and cheap multiples. That will require fundamental business execution. Watch for Squeeze vs Volatility Expectations.
- THE TRADE: Get long. Buy weakness, significant strength until you get really comfortable with execution of the MTMP. If you are a long-term investor who really likes this story, ask Ricoh to put you in touch with a cross-holder who would be willing to sell a block. The buyback could squeeze people.
(link to Travis' insight: Ricoh Buyback Redux - It's On, It's Big. Crossholders Vs Activist Vs Public. Who Sells?)
GL Ltd (GLL SP) (Mkt Cap: $0.7bn; Liquidity: $1mn)
On the 15 January, Guoco Group Ltd (53 HK) made a voluntary conditional cash Offer for 70.84%-held GLL. The Offer Price of S$0.70/share was a 25% premium to last close and 0.73x P/NAV. The acceptance condition is 90%, including Guoco's stake, although Guoco reserves the right to reduce this to 50%. Save for the acceptance condition, the Offer is unconditional in all other respects. This was an underwhelming Offer from the outset, pitching GLL at a level below the COVID drop-off in Feb/March last year. Shares have closed at or through terms every day since the Offer was announced.
- In the Circular, the IFA agreed and said the Offer was not fair; but hedged its opinion, calling it reasonable. The Securities Investors Association (Singapore) (SIAS) has joined the fray, and is also less than enthusiastic with the Offer terms. But how much clout does SIAS have in Singaporean deals?
- The SIAS raises many valid points. GLL looks cheap and why it trades through terms. But it is not a very liquid arb play. There is a precedent for Guoco bumping an Offer for GLL, but historically the Quek family has been a stingy Offeror. SIAS' opinion is probably more akin to one by proxy advisors (ISS, Glass Lewis), and will influence how some institutional investors will tender, or not.
- I like Guoco here, as it trades around a one-year discount to NAV low. Timing may be ripe for the family to reload another privatisation attempt. Liquidity is not that great though.
- Update: Guoco extends its offer for GLL to the 18 March. Remarkably, 9.5% have tendered, giving Guoco 83.18% in total.
(link to my insight: SIAS Questions GL Limited's Offer: More Bark Than Bite)
IGNIS Ltd (3689 JP) (Mkt Cap: $0.3bn; Liquidity: $16mn)
On the 5 March, 2021, Bain Capital and the entity formed by itself, the CTO, and the President of Ignis announced they would launch a Tender Offer to buy out the minorities in the company. They call this an MBO and it is one of the clearest examples of an MBO in recent memory. Management will own 70% of the resulting company, and Bain will own the rest. At a 63% premium to last trade, it is reasonably generous. But it didn't have to be. Like many Japanese MBOs and buyouts, the bidders came in with a low-ball bid and the Board/Special Committee dutifully responded by saying they wanted more. This time, the lowball bid was below the previous day's close when they made it so it was a pretty healthy lowball.
- The CTO and President who together own 42% are taking the company private as they and Bain split Bidco 50/50 between them for the rest. At a 60+% premium, this probably gets done. The zeitgeist is to allow this to happen and given it is a software/SaaS stock with a no earnings, and those stocks are getting hurt now, it seems like the right time for people to think about selling. But despite the 60+% premium, for a 25% revenue grower, it seems not terribly expensive at 4x 2.5yr forward sales and at 13x EBITDA 3.5yrs out.
- There are 900,000 shares, or roughly 11% of float, short. It may trade through terms. That will be an uncomfortable $10mm+ loss for someone(s).
- This Tender Offer cannot fail. There is no minimum. It should be bought at just below terms and tendered into. The insiders have enough, and there are no non-insiders who are large enough already to have a low-priced stake, that I expect it will be difficult to find someone who cares enough to push. It looks expensive. The managers don't think it is.
(link to Travis' insight: IGNIS (3659) MBO +63% Is Probably Too Light)
On 16 November 2020, Australia-based Childcare company TNK 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, on 23rd Nov 2020, TNK received a competitive bid at an Offer Price of A$1.75/share from Busy Bees Early Learning Australia, an entity backed by Ontario Teachers’ Pension Plan and Temasek. Busy Bees subsequently revised their competitive bid to A$2.10/share - a 20% bump from the previous bid level. Now TNK's shares are at A$2.23.
- The A$2.10 bid by Busy Bees is still a non-binding proposal. TNK's recently published annual report (page 38) confirms that "other than the Group's ASX announcement on 20 January 2021 concerning the revised proposal from Busy Bees, there have been no events subsequent to 31 December 2020 in connection with the proposals". For this Deal to become binding, it requires the completion of satisfactory due diligence by Busy Bees. Based on TNK's update on 21st December 2020, TNK had already started facilitating Due Diligence with Busy Bees. By the time Busy Bees raised their Offer from A$1.75 to A$2.10, they had already completed about a month of Due Diligence.
- Despite the strong performance recently reported by TNK, on a LTM basis, the Offer Price of A$2.10 translates to EV/Revenue, EV/EBITDA, and PER multiples of 2.8x and 8.5x, respectively, which are both higher than the average of 2.1x and 8.0x for Australia and New Zealand Peers. Furthermore, it is important to note that although their financial performance in CY20 was impressive, TNK's guidance for CY21 underlying EBITDA is actually 14% lower than what they made in CY20.
- Janaghan Jeyakumar would take profits now. At the current price, he does not feel that the upside potential in this Deal is attractive when considering the Deal Break Risk. The only outcome that could lead to a positive return from this price is a bump/overbid. While I do not rule out the possibility of a bump/overbid (from Alceon, Busy Bees, or even a new bidder), I do not see any fundamental backing for a bump high enough to deliver an attractive risk-adjusted return for those who enter at A$2.23.
(link to Janaghan's insight: Think Childcare (TNK AU): Trading Through Terms. Should You Fold Now?)
Matsumotokiyoshi Holdings Co., Ltd. (3088 JP) and Cocokara Fine (3098 JP) (Mkt Cap: $4bn and $2bn; Liquidity: $15mn)
A week ago, Matsumotokiyoshi Holdings Co., Ltd. (3088 JP) and Cocokara Fine (3098 JP) announced their long-awaited business integration plans. On October 1, Matsumoto Kiyoshi will acquire Cocokara Fine using 1.7 of its shares for every one of the Cocokara Fine shares it does not hold. That will mean about $1.8bn of new stock issued but also means accretion.
As Travis Lundy explained in his insight MatsukiyoCocokara & Co - The Merger, there is a lot to work with here. The two companies announced synergies, growth, accretive dilution, and there are some other interesting aspects to look at. But Travis also found the ratio light. On Friday Cocokara traded $17mm of volume through terms, which is quite respectable, and surprising.
(link to the insights: MatsukiyoCocokara & Co - The Merger and MatsuKiyoCocokara Merger and Implied Forward Forecasts)
Shoko Co Ltd (8090 JP) (Mkt Cap: $0.1bn; Liquidity: <$0.1mn)
Shoko is a consolidated subsidiary of Showa Denko K.K. (4004 JP). A local PE fund offered to take it off Showa Denko's hands and they said yes. Showa Denko will keep 15% and the fund will buy the other 85%. BUT.... it's cheap. Really cheap. On an EV to 5yr average EBITDA, it is 3.3x (less than 4x EV/EBIT). There is another 1x EBITDA of securities holdings and 2.6x EBITDA of net receivables. It's basically free. It traded 20+% of float and 8% of shares out on Day 1 at prices above terms. It would not surprise Travis Lundy to see some noise made. There are a few small players who are starting to act in this space.
(Link to Travis' insight: Shoko (8090 JP) Tender Offer - Showa Denko Sells Too Cheap. Looks Bumpity.)
STUBS
I see Melco's discount to NAV at ~51%, which is not only a 12-month low, but by my calculations, an all-time low. The simple ratio (Melco/MPEL) is around the lowest level since Melco increased its stake above 50% back in February 2017; and the implied stub has never been lower.
- US gaming stocks are trading at an EV/EBITDA of 13.3x for FY22E against a four-year average pre-COVID of 10.7x. Macau-gaming stocks are trading at an EV/EBITDA of 12.8x for FY22E against a four-year average pre-COVID of 12.1x. Melco and MPEL are at 13.0x and 10.6 versus their four-year averages of 50x and 15x. Bear in mind, the US-listed gaming stocks hold a majority stake in HK-listed Macau gaming stocks. Melco, a HK-listed company, is the reverse, holding a majority stake in a US-listed Macau play.
- Nevada’s test positivity rate fell below 10% on Feb 20 and has continued to drop since Jan 14, coming in at 7.3% this past Monday. However, Macau casinos no longer require negative COVID-19 test results for entry. This new rule took effect this past Wednesday.
- Melco is a set-up here - go Long Melco and Short MLCO. Even taking the view sentiment/growth for casino stocks is better in the US than in Macau, MLCO's outperformance vs. Melco is unwarranted. Furthermore, Lawrence was buying at significantly more expensive implied stub levels than where it is trading now.
(link to my insight: StubWorld: Melco's All-Time Low As Macau Stocks Lag Las Vegas Plays)
Whitebox has now issued a 30-page PowerPoint detailing its objection to the demerger. It's worth a read. It reckons the spin-off does little to streamline LG, disproportionately sacrificing dividends, royalties, and cash, and creating a new family-controlled holding company. "The Board unanimously approved a plan that we believe sacrifices minority shareholder return in order to resolve a family succession issue". Spin-offs create value for shareholders when the spun-off assets are worth more as independent entities than as part of a conglomerate, or the surviving company is sufficiently streamlined through the transaction. By creating a new mini-conglomerate, LG has foregone the opportunity to create value, with 98% of LG’s assets remaining in place.
- Whitebox contends the spin-off was conceptualised as a solution to a succession problem, and that the proposed structure facilitates a change of control of NewCo rather than maximizing corporate value. Such a share swap has been widely speculated.
- The discount to NAV at which a holding company trades is proportional to corporate governance and shareholder value creation. There is probably enough substance here to indicate LG's priorities with respect to the spin-off may not necessarily be aligned with minority shareholders.
- The NewCo discount may continue to trade at the current discount afforded by the current Holdco structure - perhaps even wider. However, the remaining Holdco after spin-off, a modestly cleaner Holdco, should trade narrower. And this is where the majority of the current Holdco's investments are parked.
- A ~64% discount to NAV - or 66% if using Whitebox's calcs - is non-sensical, and provides a good risk-adjusted return. Korean conglomerates trade at an average discount to NAV closer to 50%. Doosan Corp (000150 KS) and LS Corp (006260 KS) are both around 30%. The downside looks limited here.
(link to my insight: LG Corp (003550 KS): Whitebox States Its Case)
EVENTS
Sajo Industries (007160 KS) is a mid-sized food company in Korea, specializing in tuna fish, pet food, Korean condiments, and other food products. A group of minority shareholders are "going activist" on this company and requesting an EGM. They believe that the market value of Sajo Industries' real estate is worth nearly 10x what is recorded on the balance sheet. This group of minority shareholders are also balking at the proposed merger of Castlex Seoul and Castlex Jeju, a couple of golf courses in Seoul and Jeju, which appears to be a move that could benefit the controlling shareholder but not the minority shareholders of Sajo. Link to Douglas Kim's insight: Korea Small Cap #8: Sajo Industries - Minority Activists Take Charge.
M&A - US
Some 14 months after announcing the receipt of a preliminary non-binding proposal, CBPO entered into a definitive merger agreement, also at US$120/share, on the 19 November last year. The merger was conditional on an affirmative vote from shareholders representing at least two-thirds of the shares out, and that the aggregate quantity of dissenting shares being less than 8% of shares out. Shareholders approved the merger at an EGM. 84.5% of CBPO's outstanding shares attended in person or via proxy at the EGM, and ~92.2% voted in favour of the proposal to authorize and approve the Merger Agreement. However, CBPO also announced that it "had received notices of objection from certain shareholders that in the aggregate hold more than 8% of the total outstanding shares of the Company".
- This deal now looks set to mirror the timeline currently underway for Sina Corp (Class A) (SINA US) - What's Going On With Sina Corp?. However, the dissenting % is lower. At most dissentient shareholders total 15.5% for CBPO. For Sina it was 35.9%, suggesting negotiations with those shareholders will drag on longer than for CBPO.
- The onus is on the Offeror - it must file a petition with the Court for judicial determination of the "fair value" amount to be paid, in the absence of an agreement with the dissentient shareholders. The Offeror can use the dissenting clause in the negotiation process to walk (or threaten to walk) if a price is not agreed upon.
- To date, five cases have been assessed by the Court. The uplift versus time value of money is less than ideal. For example, 75% of the "fair value" was already known in the Trina Solar (TSL US) decision. See Trina Solar: Appraisal Rights Judgment Another Setback for Dissenters. These court decisions ostensibly provide the Offeror with a strong hand.
- Currently trading at a gross/annualised spread of 1.5%/7.5%. This assumes payment mid-May if assuming the negotiation process drags out to its full extent. And the condition is waived, one way or another. That's not a lot juice. I would wait to see if the spread widens from here as negotiations with the dissentient shareholders unfold.
M&A - EUROPE
On 26 February, Starwood Capital Operations, LLC made an offer to acquire the remaining 70.4% stake in RDI REIT (RDI LN) PLC for approximately £325 mn. The offer price is 121.35p, in cash, a 16.8% discount to the last reported EPRA NNNAV of 145.9p. It is also 95.55% of the 52-week high share price. In RDI REIT - Starwood: Expectations of a Bumped-Up Offer, Jesus is Long at levels around the offer price, on expectations of a sweetened offer.
As expected, just hours before the put up or shut up deadline, the boards of Aggreko PLC (AGK LN) and Albion Acquisitions Limited announced their agreement on a recommended all-cash acquisition of 880p in cash, adjustable by any dividend or capital distribution. The offer price represents c. 1.9x P/BV (vs a five-year average of 1.6x), and 5.3x EV/2021E EBITDA (vs. 9.6x for Ashtead or 7.4x for United Rentals, though clients are a bit different). It also implies an ROIC over 13% (which is below management expectations of 15%). Link to Jesus' insight Aggreko - PE Consortium: Recommended Cash Acquisition.
H/A MONITOR
Several weeks ago, Travis gave the warning H/A spreads had moved tighter - too far too fast. The next week, spreads widened, they bounced back with a vengeance, then slightly wider in the short week at the start of Chinese New Year, and bouncing back in the post-CNY week. They have started to move wider again, and given the global form in risk and higher volatility right now, I would not be surprised if they continued a bit wider.
- The previous week, in the first full week after the end of all the Chinese New Year festivities, all but one sector saw average spreads widen, and market-wide, spreads had their worst week in quite a while.
- Developers saw their Hs rise dramatically on the week on new rules about land sales which would appear to favour large developers over smaller developers, but few have an H/A spread presence.
(link to Travis' insight: Quiddity Weekly H/A: Strong Dispersion, Strong Alpha; Brokers Beat Banks)
INDEX REBALS
HSCI Index Rebalance & Stock Connect. For the Hang Seng Composite Index (HSCI) there are 36 inclusions and 29 deletions, taking the number of index constituents up to 500. Of the 36 inclusions, 4 are already a part of Stock Connect by virtue of having listed A-shares, 2 are Secondary listings and will not be included in Stock Connect, 9 will be added to Shanghai and Shenzhen Stock Connect, while 21 stocks will only be added to Shenzhen Stock Connect. Of the 29 index deletions, 13 are not a part of Stock Connect, 7 will continue to remain a part of Stock Connect by virtue of having listed A-shares, while 9 will be deleted from the Stock Connect program. Link to Brian Freitas's insight: HSCI Index Rebalance & Stock Connect: Inclusions & Exclusions.
ASX200 Index Rebalance Preview. Brian sees Nuix Limited (NXL AU), Codan Ltd (CDA AU) and Pilbara Minerals (PLS AU) as potential inclusions to the index, while we see Service Stream (SSM AU), Tassal (TGR AU), and Bravura Solutions (BVS AU) as potential exclusions from the index. Champion Iron (CIA AU) and De Grey Mining (DEG AU) are close adds while Gwa Group Ltd (GWA AU) and Smartgroup Corp (SIQ AU) are close deletes. Link to Brian's insight: ASX200 Index Rebalance Preview: Three Potential Changes & Some Close Names.
HSI Market Consultation. The main changes to the index are to increase the number of constituents to 80 by mid-2022 and ultimately to have 100 stocks in the Hong Kong Hang Seng Index (HSI INDEX); there will be 20-25 'Hong Kong companies' in the Hong Kong Hang Seng Index (HSI INDEX) and this number will be evaluated at least every 2 years; and all index constituents, including Secondary Listings and WVR Securities, will be subject to a weighting cap of 8%. The 8% cap will be applied to the Hang Seng China Enterprises Index (HSCEI INDEX) constituents as well. Link to Brian's insight: HSI Market Consultation: BIG Changes Coming & HSCEI June Index Rebalance Preview: Potential Changes & Impact of 8% Cap on Dividends.
SET50 Index Rebalance Preview. Potential inclusions are Sri Trang Gloves (Thailand) Public Company Limited (STGT TB), Sri Trang Agro Industry (STA TB) and IRPC PCL (IRPC TB). Potential deletions are VGI PCL (VGI TB), Com7 PCL (COM7 TB) and TOA Paint (Thailand) (TOA TB). Link to Brian's insight: SET50 Index Rebalance Preview: Potentially Three Changes & Move to Free Float Weighting.
FTSE China 50 & A50 rebalance. For the China 50, there are 3 changes with JD Health (6618 HK), Haier Smart Home Co Ltd (6690 HK) and Shenzhou Intl Group Holdings (2313 HK) being added to the index, and China Overseas Land & Investment Ltd (688 HK), Citic Ltd (267 HK) and Huatai Securities Co Ltd (H) (6886 HK) being deleted from the index. For the A50, Sany Heavy Industry (600031 CH), Zijin Mining Group (601899 CH), and Hengli Petrochemical Co.,Ltd. A (600346 CH) would be added at the March index review, while China Minsheng Banking A (600016 CH), China State Construction A (601668 CH), and China Everbright Bank Co A (601818 CH) would be deleted from the index. Link to Brian's insight: SET50 Index Rebalance Preview: Potentially Three Changes & Move to Free Float Weighting. & FTSE China A50 Index Rebalance: Materials Stocks Replace Banks.
MSCI Singapore: Sea Ltd (SE US) Index Inclusion Nears. Link to Brian's insight: MSCI Singapore: SEA Index Inclusion Nears.
FTSE Russell has announced the changes to the FTSE TWSE Taiwan 50 Index as part of the March 2021 index review that will be effective after the close of trading on 19 March. As expected, Airtac International (1590 TT) and Nan Ya Printed Circuit Board (8046 TT) have been included in the index while Sinopac Financial (2890 TT) and China Development Financial (2883 TT) will be deleted from the index. Evergreen Marine Corp (2603 TT), Au Optronics (2409 TT), Innolux Corp (3481 TT), Accton Technology (2345 TT) and Lite On Technology (2301 TT) have been added to the Reserve List. Link to Brian's insight: FTSE TWSE Taiwan 50 Index Rebalance: Nan Ya PCB, Airtac IN; Sinopac, China Dev Fin OUT.
FTSE Russell and S&P have announced the deletion of Xiaomi Corp (1810 HK) from indices. Expect MSCI to join them by mid-week at latest. Deletions will be Thursday and Friday to the tune of several billion dollars. See Travis Lundy's FTSE & S&P to Delete Xiaomi This Week; MSCI to Come
OTHER M&A & EVENT UPDATES
- PRC approval, a pre-condition, to the Offer remains outstanding in a monthly update from China Machinery Engineering (1829 HK).
- After 13 months, Henan Jinma Energy (6885 HK) has now received approval in its application to convert 238,000,000 domestic shares and 162,000,000 unlisted foreign shares into H Shares.
- Japan Airport Terminal Co (9706 JP) announces the Offer Price has been set at JPY 4966/share, which is a 3% discount to the close of JPY 5120/share.
- The results of the Teijin Ltd (3401 JP) Tender Offer to take control of Japan Tissue Engineering Co (7774 JP) from FUJIFILM Holdings (4901 JP) were announced. Teijin set a minimum of 20.3584 million shares and a maximum of 26.3899mm shares. FUJIFILM Holdings (4901 JP) tendered what they owned, but in the end, only 23,439,173 shares (or Fuji Film's position plus another 3.15mm shares) were tendered. Pro-ration was 100%.
- Vitalharvest Freehold Trust (VTH AU)recommends unitholders to vote in favour of proposal from Roc Private Equity.
- Management of Japan Asia (3751 JP) announced a special dividend to obstruct the City Index Eleventh Tender Offer. City Index Eleventh duly withdrew. The stock is down 14%.
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 |
| My Heart (8297 HK) | 22.91% | Valuable | Outside CCASS |
| China Tian Lun Gas (1600 HK) | 21.73% | Yuzhou | Guotai |
| Source: HKEx | |||
The following large movement(s) concern recently listed companies, and therefore are (likely) lock-up related.
Name | % chg | Into | Out of |
| C-Link (1463 HK) | 15.01% | Futu | Outside CCASS |
| Justin Allen (1425 HK) | 67.05% | UBS | Outside CCASS |
| Source: HKEx | |||
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