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Last Week in Event SPACE: Coca Cola Amatil, Shimachu, AMP, Hitachi, Jardines, Evergrande

361 Views01 Nov 2020 07:20
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

Coca Cola Amatil (CCL AU) (Mkt Cap: $6.3bn; Liquidity: $25mn)

Australia's largest non-alcoholic beverage bottler CCL has announced an indicative proposal from Coca-Cola European Partners plc (CCEP) by way of a Scheme of Arrangement (for $12.75/shares, cash, less any final 2H20 dividends declared and paid prior to the implementation of any Scheme). A separate acquisition of CCL shares held indirectly by Coca Cola Co (KO US) (TCCC) - 30.807% of shares out - which would be on terms less favourable than the terms offered to CCL’s independent shareholders. A$12.75/share is a 25%/38% premium to the one-month/three-month VWAP. The offer backs out a 12.0x/14.3x FY19/FY20E EV/EBITDA, both exceeding the median for peers.

  • The transaction would see the European business buy CCL, taking the Australian and Asia Pacific operations into its fold. Pulling the strings behind the scenes is TCCC, holder of 30.8% in CCL, 19.1% of CCEP, and 29.4% in the Indonesian business following the 2014 US$500mn transaction.
  • Optically, the offer price is a multi-year high, excluding a handful of days in February this year when shares traded above the indicated terms shortly after the announcement of CCL's FY19 results. It is, however, not a slam dunk proposal, mindful of the improvement in the 3Q20 results. Still, this is a pretty clean deal, and not the first proposal from CCEP, according to the announcement. I recommended buying (at the time) at a 3.4/10.2% gross/annualised spread, assuming around four-months to compete.

(link to my insight: Coca Cola Amatil: Flat Or Fizzy?)

Shimachu Co Ltd (8184 JP) (Mkt Cap: $2.1bn; Liquidity: $26mn)

Yomiuri newspaper has an article which says that Nitori Holdings (9843 JP) will, within this week, launch a Tender Offer for Shimachu, putting itself in competition with Dcm Holdings (3050 JP) which has already launched a Tender Offer at JPY 4200/share, currently set to expire on the 16 November. The possibility of Nitori coming in was flagged by the Nikkei on the 20th, late, and Shimachu shares jumped more than 10% the next day, and have recently been trading in the JPY 4,700-4,800 area. This development was discussed in Nitori To Make a Rival Bid for Shimachu? More Fun To Go after discussing the original Tender Offer by DCM (which was stated as too light a bid) in DCM Does a Full Takeover of Shimachu - Looks Like a Strong Price. Look Again.

  • Nitori has now shown strong interest as it bid well through the mid-point of the DCF valuation range from its financial advisor, and just a few percent shy of its top end. The bid at ¥5500/share is now announced, and as long as the conditions remain un-breached, Nitori intends to launch a Tender Offer when the defeating conditions are met, without regard to whether Shimachu recommends the deal or not.
  • Shimachu has said it will put it to its Special Committee, who will then investigate and compare the two offers. This is how it has to be in the new world of good corporate governance. DCM has apparently said (according to an NHK article) that it has no plans to change its tender offer and will wait for it to complete. Officially, that means the board has not made a decision, but structurally, it has a couple of weeks before it needs to respond, and there is no need for DCM to respond until the Special Committee has come up with its conclusion.
  • This has, as far as I can tell, played out as well as it could possibly be played out for shareholders, and for Nitori, and possibly for Shimachu if it will end up welcoming a Nitori bid. There are conditions. These are nuanced, and possibly confusing. A further "white knight" bid should not be seen as impossible. If Shimachu doesn't want to sell to Nitori for non-economic reasons, a white knight probably only has to match or slightly beat Nitori's bid. The caveat here is that Nitori could continue to lift its price.

link to Travis Lundy's insights:
Gaming Out a Nitori Bid for Shimachu
Nitori Bids UP For Shimachu - Now Things Slow Down

AMP Ltd (AMP AU) (Mkt Cap: $3.7bn; Liquidity: $19mn)

Aussie wealth manager AMP announced it has received an indicative, non-binding, conditional proposal from US-based Ares Management Corp (ARES US), by way of a Scheme. No price was mentioned. The take-private proposal follows a tortuous period for what was once an Australian icon. The final report of a royal commission last year exposed damaging internal practices - such as billing deceased customers and lying to regulators - culminating in net cash outflow and the exit of Catherine Brenner (chairman). Amidst the ongoing net outflow - which has continued into the 3Q20 - chairman David Murray resigned in August over his handling of a sexual harassment issue.

  • This is a non-binding proposal, subject to due diligence. Australia has a reputation as an indicative proposal graveyard. If not for the clubby Credit Suisse contingent, I would not bet against Ares walking. After completing the sale of its life insurance business to Resolution Life on the 1 July this year, AMP announced on the 2 September that the company was undertaking a review of its assets and businesses after receiving unsolicited interest in both. It is not clear whether Ares is interested in selected parts or the whole package.
  • What price? Tricky, given the share price underperformance, the regulatory issues overhanging the company, wealth management under pressure (and fees thereon), client remediation etc. The consensus target price of $1.62/share compares to the current price of $1.54. Factoring in a takeover premium of at least ~30%+ - the average premium for deal converted by Smartkarma in 2020 (see (Mostly) Asia M&A: October 2020 Roundup) - you're looking at another ~10% at least from here, based on the undisturbed price of $1.28.
  • Priced in? When AMP announced in early September they were effectively putting up the "For Sale" sign, you would expect the market to price in some premium. The share price gained 4.8% (to close at $1.62) on the news, before retracing to the undisturbed price. That probably tells you something about the "premium" to be extracted. There is still considerable uncertainty as to AMP's worth; and the transformation of the company (and the industry as a whole) will be gradual. At first glance, I'd put this in the too-hard basket.

(link to my insight: AMP: Ares' Proposal For The Once Mighty)

Hitachi Ltd (6501 JP) (Mkt Cap: $32bn; Liquidity: $100mn)

The previous Friday saw an article out of the Nikkei suggesting Hitachi might sell half its stake in Hitachi Construction Machinery (6305 JP) ("HCM") to a third party, at a discount, and that it might start a sale process on Hitachi Metals (5486 JP) "this month." It seems unlikely Hitachi would themselves be throwing in the towel 5 months later before the start of the time frame in which top management of the two subsidiaries are supposed to be able to compete globally. All of this is likely getting done with the will and direction of the subsidiaries themselves. This strikes Travis Lundy as some kind of agreement with management of HCM that they would not be averse to receiving expert help from outside while remaining listed. This changes things.

  • At 3.9x Adjusted-Adjusted EV/EBITDA this year and 3.1x March 2023 consensus De-Constructed and Re-Constructed EBITDA without the Honda subs and below 3x with the Honda subs, Hitachi looks inexpensive. It looks like Hitachi is finally looking to make good on its plan to divest or at least de-consolidate its last two remaining large subs (see [Nikkei] Hitachi May Sell Down HCM Stake for details) sooner than most thought. This will mean it will have produced a huge deliverable.
  • Foreign ownership at 48% is already quite high. That number could go higher, but there is a question of catalyst. The events themselves of selling and/or de-consolidating Chemical, HCM, and HM, fully-acquiring robotics subs and HHT, and de-equitising Hitachi Capital are somewhat "catalyst-y" but it is not clear that large waves of investors need to come in from one source or another.
  • However, sub 10x PER is where the stock is headed this year based on guidance (which may be changed when earnings come out later this week).

link to:
Travis' insight: The Right Trade May Be Hitachi
Mio Kato's insight: HCM – Profit Beat and Discussion of Hitachi Stake

Link Administration Holdings (LNK AU) (Mkt Cap: $1.8bn; Liquidity: $10mn)

Back on the 12 October, Link announced a conditional, non-binding indicative proposal from a consortium comprising PEP and the Carlyle Group, by way of a Scheme. The indicative cash price was A$5.20/share, a 30% premium to last close. On the 23 October, Link said the proposal from PEP/Carlyle "materially undervalued the company". PEP/Carlyle have now tabled a A$5.40/share non-binding indicative Offer, in cash. The proposal includes an option of a cash offer for Link ex-Property Exchange Australia (PEXA) of 3.80/share, along with the ability to take an indirect interest in PEXA. PEP/Carlyle said it requires six weeks of due diligence, and if DD access is not provided by the 28 October, they will walk. For just a 3.8% bump, that is a tad aggressive. That adds risk to a firm deal unfolding.

  • In its rejection announcement, Link highlighted the initial proposal did not provide a value for its business ex-PEXA. That has now been rectified. Ultimately, the proposal was rejected as there was significant value inherent in PEXA; the highly conditional nature of the Offer, and that many shareholders were not willing to hold unlisted instruments. Link went on to add that it is considering a potential separation of Link's interest in PEXA, such as a demerger into a separate ASA listed entity.
  • The short time frame in which to accept the indicative terms and provide due diligence is overly aggressive. Link said $5.20/share "materially undervalues Link Group". I don't see how a 3.8% bump in terms motivates Link's board to open up the data room.
  • The lackluster reaction to the share price (+0.8%) after the bump reflects the risk to the deal. You currently have 9.3% up to terms vs ~19% down to the undisturbed (at the time of my insight). The current proposal terms are not attractive to Link based on the rejection notice last week, suggesting PEP/Carlyle might walk if DD is not granted.
  • UPDATE: DD granted, but Link still reckons the Offer is inadequate.

(link to my insight: Link Admin: Hardball Tactics After Meagre Bump)

Medical & Biological Laboratories (4557 JP) (Mkt Cap: $0.2bn; Liquidity: $2mn)

JSR Corp (4185 JP) ("JSR") announced a Tender Offer to acquire the remaining shares in its 50.8%-owned subsidiary MBL. MBL specializes in clinical diagnostics and research reagents and has recently added COVID-19 research/testing-related products to its portfolio. The Offer Price would be ¥4400/share in cash which translates to a deal size of ¥11.2bn (~US$107mn). The Tender Offer Period will be from 28th Oct-2020 to 10th Dec-2020. The Deal has a minimum acceptance condition which requires the Acquirer to reach two-thirds control.

  • The Offer Price seems quite light. The Offer translates to a premium of +23.8% to the pre-announcement closing price. It is also +26.3%, +34.1%, +21.9%, and +16.2% higher than 1-month, 3-month, 6-month, and 1-year VWAPs. Furthermore, it is -8.4% lower than the stock's 3-year high. The Offer Price is below the mid-points of the DCF Valuation and Peer Comp ranges suggested by the Acquirer Advisor. The Offer has been opportunistically timed when MBL's EV/EBITDA (LTM) multiple was close to its 3-year low.
  • However, there might be enough friendly shareholders to get this Deal over line. JSR currently owns 50.8% ( 2,627,781 shares). For the Tender Offer to be successful, at least 819,419 shares have to tender from the 2,577,319 shares that are currently not owned by JSR.

(link to Janaghan Jeyakumar's insight: JSR (4185 JP) Tender Offer for Medical & Biological Labs (4557 JP))

In NPS Takes a Stand Against LG Chem's Plan to Separate the Battery Business, and NPS Says No to LG Chem Split: October 30 Voting Race Update, both Douglas Kim and Sanghyun Park discussed the announcement that the Korea National Pension Fund Service (NPS) will likely vote against LG Chem Ltd (051910 KS)'s plan to separate the rechargeable battery business. On 16 September, LG Chem announced its plan to separate the rechargeable battery business and since then its share price has declined 13% (15 September to 27 October). This is perhaps the biggest activist move by the NPS this year on a Korean large-cap company in 2020.

On 24th August 2020, Allcargo Logistics (AGLL IN) announced it had received a “Delisting Proposal Letter" from members of its Promoter Group. After market-close on 22nd October, the company announced the voting results for the delisting offer which confirmed that the shareholders have approved the transaction. As the control premium embedded in the current price seems insufficient, Janaghan expects more upside on both an outright and market-neutral basis. Allcargo Logistics (AGLL IN): Shareholder Vote Encouraging. Buying Opportunity

In Senshukai Hopes for Rebirth with JR East, Michael Causton discusses East Japan Railway Co (9020 JP) (JR East) agreeing to a capital and business alliance with Senshukai (8165 JP) last month. As part of the deal, JR East will take a 12.5% stake in Senshukai.

STUBS

Pac's discount to NAV of ~52% is at its all-time low. The implied stub, stripping out its ~82% holding in Props, is around its lowest level since Properties was listed in Jan 2012. Pac/Prop jointly announced this week it is in discussions to sell a multi-story building in Taikoo Shing. This is Cityplaza One. "No agreement has been reached." Reportedly private equity company Gaw Capital is offering to buy the 21-story, 58k square metre building for HK$10bn (US$1.29bn). Gaw is well acquainted with this site. Back in June 2018 when Prop sold two office towers (Cityplaza Three and Four) for US$1.9bn, Gaw acquired a 49% stake in that sale.

  • This proposed sale is not the only non-core property to be sold by Prop recently. In July, Prop sold two office buildings at South Florida's Brickell City Centre for US$163mn. Earlier this month, Props announced plans to sell a total of 227 car and 62 motorcycle parking spaces in the Taikoo Shing housing development in Quarry Bay.

  • The proposed office sale comes at a time when the Hong Kong property market, consistently viewed as having the world's most expensive property values, is stress-tested. September was the fourteenth consecutive month that the total amount of office space leased in Hong Kong declined, with 243,500 sqft returned to the market according to JLL. In Central, the vacancy edged above 6% in the 3Q, the first time since December 2005. It is now at 6.8% (end-September 2020), up from 3.6% at the beginning of the year. The overall vacancy rate for Hong Kong is 8.3%, up from 6% at the end of December 2019.

  • Props booked an impairment charge of HK$2.6bn in the 1H20, a little under 1% of total investment property. Does the reported selling price for Cityplaza One provide a wider context, with Hong Kong comprising 85% of property assets? I would argue Props' P/B metric does not fully reflect the "B" when taking into account the current cap rates.

  • I would still continue to avoid both Cathay Pacific Airways (293 HK) and Swire Pac. Despite trading at a miserly 0.2x P/B on a look-through basis, Pac could still be on the hook to throw more money at Cathay; and apart from its beverage ops, the remaining stub ops are loss-making and/or unexciting. Swire Prop appears okay - neither outwardly cheap nor overly expensive. I think a material impairment charge to investment property is feasible in the 2H20. For the brave, at these extreme levels, you could start to set up the stub - long Pac, Short Prop. It should, at least, go on the watchlist as something to put on when the momentum stops.

(link to my insight: StubWorld: Swire Shedding Property Amidst Leasing Funk)

Jardine Matheson Holdings (JM SP) / Jardine Strategic Holdings (JS SP)

JMH announced a US$500mn share buyback program extending until 30 June 2021. Any shares purchased will be canceled. JMH is not regulatorily obligated to inform the market of any forward buyback program after moving its primary listing to London's standard board in 2014. Why this announcement is being made now is not immediately apparent. Apart from the obligatory SGX share repurchase announcement, JMH has provided zero guidance on the size of the intended buyback to date. The transparency now, however, is welcome.

  • JMH has bought back 13.1mn shares at a cost of US$629mn since it resumed buybacks in September last year. As discussed here in the past, that leaves JMH with ~US$1.5bn-US$1.6bn in the kitty to continue buybacks after selling Jardine Lloyd Thompson Group P (JLT LN) in 2018 for US$2.2bn.
  • I believe the Keswick family will continue to chip away at minority ownership - via JMH buybacks - in order to capture the discount for insiders and reduce the ultimate restructuring cost. There is no urgency for the family to restructure the group, nor a strong case for the family to undertake such a costly exercise.
  • The simple ratio appears to have found a new base around 2x. Although the buybacks have peaked at 2.05x in the 2H20, the average ratio is almost exactly 2x based on the shares acquired. I'd set-up a Long JMH/Short JSH at 2.0x or below.

I estimate LVS is trading at a ~57% premium to its NAV against a 12-month average of 46%. Reportedly LVS is tapping market interest for the Venetian Resort Las Vegas, the Palazzo, and the Sands Expo Convention Center. Should they be sold - properties could fetch upwards of US$6bn - LVS' gaming portfolio would focus on Singapore (Marina Bay Sands) and Macau (Sands China). In FY19, US/Macau/Singapore accounted for 14.9%/62.5%/22.5% of the US$13.7bn in revenue, and 10%/31%/57% of EBITDA (US$5.4bn).

  • LVS is more optimistic about operations rebounding faster in Macau and Singapore, compared to convention and large group business growth in the US. According to the 3Q presentation, US$0.8bn and US$3.1bn of forward spending is to be allocated to Macau and Singapore respectively.
  • Adelson may be configuring a way to pass on his wealth to his 5 children. He may also be preparing to sell the US assets should Democrats win the election and levy higher taxes on the wealthy. With investments straddling US, Singapore and Macau, it is possible a buyer of the US casinos may not be the same buyer as the Macau and Singapore casinos. And vice versa. It is, however, not clear who would be the buyer of the US casinos.
  • A sale of the LV ops would probably be the first step towards a wider group restructuring. LVS may distribute proceeds via a special dividend, creating a US-listed Asian casino play, which may be a more attractive proposition to some suitors. Such an acquisition would not face CFIUS pushback. LVS may choose to in-specie its holdings in Sand China, which would necessitate a US listing of Sand China prior to the distribution. A merger between LVS and Sand China is another alternative, should the US ops be sold.
  • Ultimately. this news surrounding the sale of the US ops provides a positive spin on Macau, and Sands China. It may also lead to situations where Sands China is either in play as an asset for sale; or whereby LVS spins-off the holding to shareholders.

(link to my insight: StubWorld: Macau/Sing Focus As LVS To Ditch LV; CK Hutch In Tower Talks)

Shimao Property Holdings (813 HK) / Shimao Services Holdings (873 HK)

SSH is the spin-off of Shimao Prop, who will own 66.5% in SSH after the IPO, down from 90% currently. Similar to KWG Living Group (3913 HK), SSH's implied PER is in keeping with its generous growth the last two years, and arguably can be justified, to some degree, when comparing PER/Growth to peer comps.

  • Shimao Prop's P/B is at a premium to peers, above where it has been in recent years. More importantly, Shimao trades at a significant premium to the implied P/B for property developers, net of their management services investment holding. It looks expensive and I recommend shorting the stock here against a basket of larger-cap property developers, or selectively against say A-Living Services (3319 HK).
  • I'm not a buyer of SSH, but I believe KWG Living looks ever more expensive. There are a lot property service companies coming through the funnel - Sunac Services Holdings (1820476D HK) is the next cab off the rank. It will be interesting to see where both SSH and KWG Living are priced relative to their IPO range.
  • UPDATE: KWG Living declined 17.4% on its debut. SSH was down 0.1%.

(link to my insight: Shimao Services: KWG Living-Like Valuation; Parent Trading Rich)

EVENTS

Evergrande Real Estate Group (3333 HK) (Mkt Cap: $25bn; Liquidity: $53mn)

About 9-10 weeks ago, Chinese authorities called a dozen large real estate developers onto the carpet with very little lead time and askedproposed mandated they participate in a "pilot programme" called Three Red Lines. "Pilot programme" is a nice way of saying - "Here are the new rules, and they apply to you first." Five weeks after the meeting, it was reported in local media that the company had sent a letter asking for assistance to the Guangzhou government four days after the Three Red Lines intro meeting, warning of the possibility of funding difficulties and default.

  • Then two weeks ago, the company announced a sale of up to US$1.3bn (including greenshoe) in shares at an 11.1-14.7% discount. Travis wrote about Evergrande's share sale in Evergrande Equity Placement - Musical Shares. It turns out the company could not place more than about half the base amount, at the widest discount in the range, which was 3% below the average price paid in the May-June buyback highlighted in yellow.
  • Two weeks after the placement of shares at HK$16.50 caused the shares to fall sharply from the HK$19 area to which they had rebounded, the company announced they had bought back 900,000 shares. This came earlier, and at a higher price, than Travis thought likely. Yesterday, the company bought back shares at a 10.6% discount to where they had just placed shares a week ago, and at a 7% premium to where they had been trading earlier in the day. Subtlety is not the company's strong suit.
  • The company apparently now wants to buy back shares at about 10% less than that (the high price yesterday was 10.6% lower than where they sold shares 2 weeks ago). And if the company wants to ensure that the shares stay in a 10% price band while they try to solve a Very Large Debt Problem then Travis is happy to stay away. But given the fundamentals, I'd be happy to stay away anyway.

(link to Travis' insight: Evergrande Equity De-Placement: Musical Shares)

Nexon (3659 JP) (Mkt Cap: $24.7bn; Liquidity: $98mn)

Travis constructed a brief thinkpiece about where Nexon sits vs its peers and history. Conclusions are that NEXON is not dramatically expensive to its peers on a Forward EV/EBIT multiple basis. You would need another 5+% into the close to be comfortable with a clean short-term trade given the change in Real World Float
  • If you are a long-only investor, liquidity/float just got smaller. That means until Q3 earnings sees a preview or forecast amendment, the potential for a squeeze is to the upside. If you are an index inclusion trader, the possibility of a squeeze is significant enough, and the lack of buffer on excess valuation large enough that shorting the inclusion to buy back lower down afterwards seems unappealing unless we get a stronger kick into the close.
  • The right way to place the orders are limit on close in some decent size just before the close based on where you want to sell. Don't be shy if you want to sell.
  • If you buy into this squeeze possibility, you might want to be willing to put a bid in the market just in case there is a large unwind into the close, or be ready to purchase tomorrow morning if there is a sharp fall-off after the inclusion event at today's close

M&A - EUROPE

On 26 October the European Commission cleared Lvmh Moet Hennessy Louis Vuitton (MC FP) proposed acquisition of Tiffany & Co (TIF US). Separately, the WSJ reported that Tiffany is nearing an agreement to accept a lower price in its takeover by LVMH. The companies have come to a preliminary agreement on new deal terms that would call for LVMH to pay $131.50, down from the prior $135. (link to Jesus Rodriguez Aguilar's insight: Tiffany - LVMH: Preliminary Agreement at a Lower Price)

With the rights exercise price so far below where the real-time TERP stands, it would seem shareholders have become significantly more bullish on Rolls-Royce Holdings (RR/ LN). Shares squeezed hard, up 32% on the 28 October. (link to Travis' insight: Rolls Royce Rights Roll Off)

With the merger of CaixaBank SA (CABK SM) and Bankia SA (BKIA SM) is progressing at speed, Jesus finds the spread attractive. But at 1.66% (gross) and payment in March, there's not a lot in it. (Link to Jesus' insight: Bankia - CaixaBank: Merger in Progress, Spread Attractive)

Nova Resources BV has agreed to acquire the remaining 60.62% interest in Kazakh copper miner Kaz Minerals (KAZ LN) it does not already own. Nova will pay 640p per share in cash, a 12.1% premium to last close. The bid represents 3x implied EV/Forward revenue (vs. 2.0x mean for comparable miners), 5.4x EV/Forward EBITDA (vs. 4.5x for comparable miners), and 7.2x P/Forward EPS. Antofagasta trades at 3.2x EV/Forward revenue and 6.2x EV/Forward EBITDA. The current price of 626p offers an okay 2.2% gross spread (c.9% annualised). (Link to Jesus' insight: KAZ Minerals Buyout: Over to Youe)

PAIRS

In Japan Cosmetics Pair Trade: Long Fancl/Short Kose, Oshadhi Kumarasiri recommends that with earnings season approaches, that investors consider closing the Long Kose Corp (4922 JP)/Short Shiseido Company (4911 JP) trade (recommended in Japan Cosmetics Pair Trade: Long Kose/​​Short Shiseido) and reversing the same, but this time with Fancl Corp (4921 JP) as the hedge.

M&A ROUND-UP IN OCTOBER

For the month of October, 15 new deals were discussed on Smartkarma with an overall announced deal size of ~US$31bn. The average premium for the new deals announced (or first discussed) in October was ~25% and the YTD average premium for all deals discussed on Smartkarma (121 all-in) is ~32%. The average for all deals discussed on Smartkarma in 2019 (145 deals all-in) was 31.5%. (link to my insight: (Mostly) Asia M&A: October 2020 Roundup)

SHARE CLASS

After trading at a premium of just over 10% for a long time, HDFC Bank (ADR) (HDB US) is (at the time of Brian Freitas's insight HDFC Bank ADR - Too High a Premium to Pay) trading at a 20% premium to HDFC Bank (HDFCB IN) with the spike coming in the last couple of weeks during which time the volumes on the ADR have been higher than normal. While there may be more flow coming on the ADR, Brian feels that the premium should peak in the near future and recommend selling the ADR, buying the local shares (or the single stock futures) and hedging the USDINR FX. With local shares available to foreign investors, existing holders of ADRs should look to switch to the local line.

INDEX REBALS

KOSPI200 Index Rebalance Preview. At the current time, Brian sees nine stocks being added to and deleted from the index with another three stocks as very close adds and deletes. There could be an additional change with Big Hit Entertainment (352820 KS) getting index inclusion as a Fast Entry - this change could be announced ahead of the regular review announcement or as a part of the regular announcement, though the implementation will be at the same time as the December review. Brian's insight: KOSPI200 Index Rebalance Preview: Review Period Nearly Complete, Nine (Or Ten) Possible Changes

Ant Group (6688 HK). The H-shares will get Fast Entry into the FTSE GEIS and the FTSE China 50 Index on 11 November, followed by inclusion in the MSCI GIMI on 18 November. Inclusion in the Hang Seng China Enterprises Index (HSCEI INDEX) should happen in March 2021 and the earliest inclusion in the Hong Kong Hang Seng Index (HSI INDEX) would happen in June 2021 (though the more likely date is in September 2021). With the limited free float on the A-shares and the larger free float on the H-shares, the A/H premium could be very high. Brian's insight: Ant Group - Fast Entry for H-Shares; A-Shares Have to Wait

MSCI to Update India Foreign Ownership Limits. MSCI announced it would implement changes to the Foreign Ownership Limits (FOL) for Indian securities coinciding with the November 2020 Semi-Annual Review. MSCI has deferred implementation in the past on concerns of timeliness, quality and standardization of data from the two Indian depositories, NSDL and CDSL. With the changes now to be made, there will be a few more additions to the MSCI India index in the upcoming review and there will be weight increases for quite a few stocks as a result of the increase in FOL. Brian's insight: MSCI to Update India Foreign Ownership Limits

KOSDAQ150 Index Rebalance Preview. At the current time, Brian sees 16 potential inclusions and exclusions with a one-way turnover of 6.94%. This includes the fast entry inclusion of Kakao Games (293490 KS). Brian's insight: KOSDAQ150 Index Rebalance Preview: Reversion Sets Up an Attractive Entry Point

Sensex Index Rebalance Preview. Dr. Reddy's Laboratories (DRRD IN) continues to remain a high probability inclusion, and Oil & Natural Gas Corp (ONGC IN) is the corresponding deletion candidate. There is a lower probability of Britannia Industries (BRIT IN) being included in the Sensex, in which case Tata Steel Ltd (TATA IN) would be deleted. Brian's insight: Sensex Index Rebalance Preview: Take Profit on Strong Outperformance

CSI300 Index Rebalance Preview. There were 21 changes to the index at the June review, and we expect up to 24 changes in the December review. Estimated one-way turnover is 4.06% and there are 4 inclusions and 11 deletions that could have more than 1 day of ADV to trade. Brian's insight: CSI300 Index Rebalance Preview: 21 Changes in June, Could Be 24 in December

OTHER M&A & EVENT UPDATES

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

China Water Affairs (855 HK) 18.36%HuataiChina Merch
Dalian Port (Pda) Co Ltd H (2880 HK) 16.60%China MerchOutside of CCASS
Akeso Biopharma Inc (9926 HK) 15.99%China MerchOutside of CCASS
Jinhai (2225 HK)51.42%GuotaiChina Tonghai
China Financial Services Holdings (605 HK) 10.74%CCBOutside of CCASS
Zhou Hei Ya International (1458 HK) 20.97%CitiOutside of CCASS
EDICO Holdings Ltd (8450 HK) 20.00%SanfullOutside of CCASS
China Smartpay Group Holdings (8325 HK) 18.98%Central WealthOutside of CCASS
CSPC Pharmaceutical Group (1093 HK) 18.50%HSBCOutside of CCASS
Polytec Asset Holdings (208 HK) 29.22%HantecOutside of CCASS
Beijing Sports and Entertainment Industry (1803 HK) 27.11%SilverbricksGuoyuan
Source: HKEx

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

Name

% chg

Into

Out of

Ming Yuan Cloud Group (909 HK) 45.20%UBSOutside of CCASS
Source: HKEx
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