Last Week in Event SPACE ...
(This insight covers specific insights & comments involving Stubs, Pairs, Arbitrage, share Classifications, and Events - or SPACE - in the past week)
Didi - China's largest ride-hailing app/service which is backed by Softbank Group (9984 JP) and Tencent (700 HK) launched, then upsized, a mega-IPO to raise US$4.4bn. Shares rose 1% on the IPO, rose 16% on Day 2, then fell 5% on Day 3 as the Cyberspace Administration of China (CAC) announced a cyber security review of the Didi Travel app. Didi said they would cooperate with regulators. But there was a background to this. Then the CAC a took it one step further, announcing it was instructing all platforms to remove the app from distribution. Later this past week, the CAC asked all platforms and providers to remove another 25 Didi apps from their platforms. It's a full halt.
The Cyberspace Administration of China (CAC) said this past Monday that it is investigating the online recruitment platform Zhipin.com as a measure to tighten regulations on data security and safeguard national security. The online recruitment platform Zhipin.com is owned by Kanzhun (BZ US) and CAC had ordered Kanzhun to halt the registration of new users until the Cyberspace review is over. In addition to probing the country’s internet giants over their monopolistic practices, China has been serious about tightening regulations on data security. Link to Shifara Samsudeen's insight: Didi Chuxing - Slammed by Regulators, Again. A Review of the Regulatory Timeline.
On 6 July 2020, Sina Corp (Class A) (SINA US)announced it had received a preliminary non-binding “going private” proposal from New Wave MMXV - a company controlled by its chairman and CEO Charles Chao. The bid was US$41/share. This was followed by an Agreement and Plan of Merger pursuant to which New Wave would acquire all of outstanding ordinary shares not owned at US$43.30/share. Shareholders approved the merger on 23 December 2020. The importance of Sina Corp was that it owned a very large stake in China's premier micro-blogging (twitter-equivalent) service, operated by Weibo.
Sydney Airport (SYD AU) (Mkt Cap: $15.8bn; Liquidity: $34mn)
SYD announced a consortium comprising IFM Investors, QSuper, and fund manager Global Infrastructure Management has made an indicative, non-binding Offer by way of a Scheme at $8.25/share, a 42% premium to last close. SYD has commenced an assessment of the proposal but mentions the Offer price is below the Covid-cliff, and that the pandemic effect on operations is expected to be short-term. A condition to the Offer is UniSuper receiving an equivalent equity interest in the Consortium's holding vehicle rather than the cash consideration. UniSuper holds ~15.3% in SYD.
(link to my insight: Sydney Airports (SYD AU): Opportunistic Tilt Amid Cloudy Future)
Beijing Capital Land Ltd H (2868 HK) (Mkt Cap: $1bn; Liquidity: $1mn)
BCL has announced a pre-conditional Offer from its controlling shareholder, state-owned Beijing Capital Group, otherwise known as the Capital Group. The Offer price is HK$2.80/share, a 62.79% premium to last close, and a 150% premium to the average closing price over the previous 60 trading days. The Offer price will NOT be increased. No dividends are expected to be declared. A concurrent Offer for BCL's domestic shares at RMB2.334080/share is also tabled. The pre-conditions, which cannot be waived, include approvals from NDRC, MoC, and SAFE. As BCL is PRC incorporated, this delisting proposal is by way of a Merger by Absorption, which involves a Scheme-like vote from disinterested shareholders. There is no tendering acceptance condition attached to this delisting.
(link to my insight: Beijing Capital Land (2868 HK): Delisting Offer From Parent)
On the 13 January 2021, China Machinery Engineering (1829 HK) announced a pre-conditional Offer from its controlling shareholder, state-owned Chinese National Machinery Industry Corporation, also known as SINOMACH. The Offer price was HK$3.70/share, a 45.10% premium to last close. A nervous 20 weeks later, CMEC announced the preconditions - NDRC, MOFCOM & SAFE - had been fulfilled. The Circular is now out. The H-class meeting will be held on the 28 July, and assuming all conditions are satisfied, the consideration under the Offer will be paid on or before the 17 August. This is a low-balled Offer, although the IFA (Somerley) disagrees. Nevertheless, this deal is expected to get up and is currently trading tight to terms. Link to my insight: CMEC (1829 HK): Circ Out. H-Class Meeting Firmed. Looks Done.
On 24th August 2020, Allcargo Logistics (AGLL IN) announced they had received a “Delisting Proposal Letter" from members of its Promoter Group (Shashi Kiran Shetty and Talentos Entertainment Private Limited). The Promoters collectively hold 172.0mn shares in Allcargo representing a 70.01% stake and the Offer will be made to acquire the remaining 73.7mn shares representing a 29.99% stake. In Janaghan Jeyakumar's first insight, Allcargo Logistics (AGLL IN): Indian Delisting Offer Trading Cheap, he mentioned that Allcargo's multiples were inexpensive compared to peers and since the control premium at that price was insufficient. So far the stock has gained 42% from its undisturbed level. Link to Janaghan's insight: Allcargo (AGLL IN): +42% Up So Far. How Much More to Go?.
Almost there. As at the First Closing Date, being 17 June 2021, valid acceptances of the H Share Offer had been received in respect of 29,655,630 H Shares, representing 58.18% of the H Shares held by the Independent H Shareholders of Sichuan Languang Justbon Service Group (2606 HK). As at the Extended Closing Date, being 2 July 2021, valid acceptances of the H Share Offer had been received in respect of 45,462,607 H Shares, representing 89.19% of the H Shares held by the Independent H Shareholders. The Offeror has decided to extend the Offers to Friday, 16 July 2021 (the “Second Extended Closing Date”.
On 18th March 2021, Japan-based wastewater management company Takeei Corp (2151 JP) and metal recycling company Rever Holdings Corp (5690 JP) announced (J-only) they had agreed to merge in a transaction that will see both companies joined under a new combined holding company (NewCo). Both companies' shareholders have now accepted the Deal. Now the Deal is on track for the companies to get on 29th September 2021 and the New Co can be expected to be listed on 1st October 2021. Since the Deal was announced, shares of Rever and Takeei have gained 24% and 30% respectively. This continues to be an interesting case of a TOPIX inclusion disguised in a merger. There will be significant demand at that time. Because there is still considerable time, if you have the ability to be nimble, Janaghan would be prepared to sell on significant short-term outperformance vs peers, and buy on underperformance vs peers as long as excess volume does not accumulate. Link to Janaghan's insight: Takeei (2151 JP) - Rever (5690 JP): Shareholder Approvals Complete - Road to TOPIX Upweight Clear.
Five weeks ago in Bank of Kyoto (8369) - A Deeply Discounted Holdco Which Will Likely Not Monetize Travis discussed the fact that despite the fact that Bank of Kyoto had gotten kicked out MSCI Japan in something of a surprise move, AND the fact that Bank of Kyoto was at near the largest discount to NAV seen in years (when not counting the brief foray to 50% during the covid-crash of late March 2020). At a ~50% discount* to the after-tax value of the top 100 positions in the equity portfolio (which represent most of the value of the overall portfolio, ignoring the value of the banking operations themselves, and on the back of a 15% widening in the spread since a couple of months prior, and on the back of a large MSCI selldown... I came out bearish. Since then, the spread has widened further.
(link to Travis' insight: Bank of Kyoto (8369) - Cheaper Now)
Las Vegas Sands (LVS US) / Sands China Ltd (1928 HK)
Gaming and non-gaming operations in Macau continue to be impacted by travel restrictions related to COVID and visitation remains well below 2019 levels. The easing of travel restrictions is fundamental to recovery to 2019 GGR levels.
(link to my insight: Sands China (1928 HK): Gambling On The Future)
I see Melco's discount to NAV at ~20%, right at the +2STD line. The simple ratio (Melco/MPEL) is around the average since Melco increased its stake above 50% back in February 2017. The current implied stub of negative HK$7.64/share compares to the average of ~(HK$10) since that 2017 stake increase. If you had set-up Melco - Long Melco and Short MLCO - I'd unwind that trade. I'd be inclined to reverse the stub here - Short Melco and Long MLCO.
(link to my insight: StubWorld: Lock In Profits As Melco's NAV Discount Narrows)
The SGX announced on the 31 March a regulatory framework for SPACs to list on the SGX and subsequent to the feedback phase ending on the 28 April, the framework may be finalised by the middle of this year. Media reports are now emerging that Temasek-backed Vertex Holdings is set to be Singapore's first SPAC. With US$5bn of assets under management, 30-year old Vertex has the necessary pedigree to establish the country's first (successful) listing. Details of Vertex's SPAC, including the size and proposed listing date, have not been finalised.
(link to my insight: Vertex Holdings: Singapore's Showcasing SPAC)
Shipping Carriers
Drewry's released its latest Container Forecaster report, published on the 30 June, forecasting EBIT for the container carriers of US$88bn in 2021, possibly as high as US$100bn. To put that in context, in February 2018 McKinsey & Company estimated that low rates of returns for container shippers had destroyed "over $100 billion in shareholder value over the last 20 years". Therefore container shipping companies are effectively recouping 20 years of losses in one year.
(link to my insight: Yang Ming Marine (2609 TT): Cargo Shipping In First Class)
The Board of Wm Morrison Supermarkets (MRW LN) has recommended a 254p cash offer by a consortium led by Fortress (to be effected by a scheme of arrangement). This is a 10.4% improvement vs. CD&R's last possible offer, which was rejected by the Board. In Fortress's Recommended Cash Offer Trumps CD&R, Jesus Rodriguez Aguilar still expects an improved offer to be in the range 270-280p.
GlaxoSmithKline PLC (GSK LN) has issued its response to Elliot’s letter. In GSK (GSK.L/GSK.N) Fails to Impress, in Their Response to Elliot, David Lepper reckons the content of the response in our view reveals a lack of commitment, and a rather overly defensive stance suggesting GSK have been caught off guard by the letter.
Apollo Global Management Inc (APO US) has reached an agreement to acquire a 67% stake in the Italian paper company Reno De Medici (RM IM) from the firm's two largest shareholders Cascades Inc (CAS CN) and Caisse de depot et placement du Quebec. It is estimated that the operation will be completed during Q3 2021. The price of €1.45/share represents a premium of 21% over the 3-month VWAP. In Apollo/Cascades/Reno De Medici: First Step to a Delisting Offer, Jesus reckons there is a chance of a sweetened offer.
FTSE TWSE Taiwan 50 Index Rebalance Preview. The next rebalance will be effective after the close of trading on 17 September and the changes will be announced on 3 September. The September review will use data from close of trading on 23 August to determine the stocks to be included and excluded. As of the close on 7 July, Brian Freitas sees Momo.Com Inc (8454 TT) being included in the index replacing Chang Hwa Commercial Bank (2801 TT). Link to Brian's insight: FTSE TWSE Taiwan 50 Index Rebalance Preview: Momo & Index Inclusion)
FTSE China 50 Index Rebalance Preview. The next rebalance will be effective after the close of trading on 17 September and the changes will be announced on 1 September. The September review will use data from close of trading on 23 August to determine the stocks to be included and excluded. Using prices from the close on 6 July, Brian sees Country Garden Services Holdings (6098 HK) and Sunny Optical (2382 HK) being included in the index, while China Merchants Securities Co Ltd (H) (6099 HK) and China Tower (788 HK) could be deleted from the index. Link to Brian's insight: FTSE China 50 Index Rebalance Preview: The Changes Keep Coming)
ASX200 Sep21 Index Rebalance Preview. We are almost three-quarters of the way through the review period. There are 3 potential inclusions at the review - Centuria Capital (CNI AU), Wilson (PNI AU), and Sealink Travel (SLK AU) while the potential deletions are Nuix Limited (NXL AU), NRW Holdings (NWH AU), and G8 Education (GEM AU). Galaxy Resources (GXY AU) is placed in the inclusion zone but is unlikely to be added to the index given its pending merger with Orocobre Ltd (ORE AU). De Grey Mining (DEG AU) is a close add and the corresponding deletion is Westgold Resources (WGX AU). Link to Brian's insight: ASX200 Sep21 Index Rebalance Preview: Large Impact Names)
FTSE China A50 Index Rebalance Preview. The next rebalance will be effective after the close of trading on 17 September and the changes will be announced on 1 September. The September review will use data from close of trading on 23 August to determine the stocks to be included and excluded. Cosco Shipping Holdings Co-A (601919 CH) and Great Wall Motor (601633 CH) are high probability inclusions in the index, while Will Semiconductor Ltd (603501 CH) is a lower probability inclusion right at the cusp. Stocks that are currently likely to be deleted are CSC Financial Co Ltd (601066 CH), Anhui Conch Cement Co Ltd A (600585 CH), and Inner Mongolia Yili Industrial Group (A) (600887 CH). Link to Brian's insight: FTSE China A50 Index Rebalance Preview: Cosco Shipping & Great Wall Are High Probability Adds)
ASX200 Index Rebalance. S&P DJI announced the deletion of Bingo Industries (BIN AU) from the S&P/ASX 200 (AS51 INDEX) subject to shareholder and final court approval of the scheme of arrangement where the company is being acquired by Recycle and Resource Operations. Centuria Capital (CNI AU) will be included in the index with the change being implemented at the close of trading on 15 July. FTSE has announced the deletion of Bingo from the Global Small Cap Index at the close of trading on 15 July, while MSCI is expected to delete the stock from the Small Cap index. Link to Brian's insight: ASX200 Index Rebalance: Bingo Deletion, Centuria Capital Inclusion)
Soho China Ltd (410 HK)'s Composite Doc has been pushed out to "within seven days of the satisfaction (or, if capable of being waived, waiver) of the Pre-Conditions or 31 December 2021 (whichever is earlier)." More importantly, "the Offeror has submitted the relevant notification documents and materials to SAMR".
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 |
K W Nelson (8411 HK) | 75.00% | UBS | Outside CCASS |
China Oil Gangran Energy Group Hldg (8132 HK) | 10.05% | Emperor | Outside CCASS |
Peking University Resources (618 HK) | 10.00% | VMS | DBS |
Ever Harvest (1549 HK) | 63.75% | AFG | Outside CCASS |
Pentamaster International (1665 HK) | 34.67% | Yuanta | Outside CCASS |
Guangdong Tannery (1058 HK) | 69.72% | Haitong | Outside CCASS |
Yincheng International Holding (1902 HK) | 11.88% | China Tongbai | Outside CCASS |
Source: HKEx |
The following large movement(s) concern recently listed companies, and therefore are (likely) lock-up related.
Name | % chg | Into | Out of |
Jacobio Pharmaceuticals (1167 HK) | 10.76% | GS | Outside CCASS |
Zylox-Tonbridge Medical Technology (2190 HK) | 10.30% | JPM | Outside CCASS |
Source: HKEx |
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