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Sembcorp Industries

Last Week In Event SPACE: Line Corp, Esprit, Sembcorp Ind, Car Inc, Accordia Golf, Skyworth, JCNC

385 Views26 Jul 2020 07:26
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

LINE Corp (3938 JP) (Mkt Cap: $12.4bn; Liquidity: $16mn)

This insight will make more sense if you have read Travis Lundy's Market Is Pricing a LINE Bump - Should It? and if possible, the FT article. The article mentions "In separate letters sent to Line’s board this month, several overseas hedge funds questioned both the deal’s valuation and the process by which the tender offer price was reached...". There are comments about the independence of two of the independent directors who participated in reviewing the LINE Tender Offer Price for the LINE independent committee because they just joined ZHD's board as independent directors as of the recent AGM selecting them. There are further arguments that because ZHD had gone up 30% since the announcement and Naver had gone up 66%, the price paid for LINE should go up. The idea there is that LINE investors have not been able to participate in the market's rise.

  • At the close of trading on 21 July, LINE shares were at ¥5510. That is a 2.4% premium to terms. Travis could imagine someone getting a 5-10% premium at this point in time. But not much more. And he sees no hard and fast reason why such a bump would be warranted. He thought last December that terms were more than generous. LINE was already trading rich. That other companies have seen their market prices chased ever higher may be related to the way the services of those companies are used and have appealed to both consumers and investors in the process of the COVID-19 pandemic. It is not clear that LINE is one which is seeing similar consumer interest. It is possible, and we should await earnings on 29 July.
  • Travis has no basis for suggesting that LINE will have a blowout Q2. Similarly, he has no basis for saying that consumers have latched onto other internet or social network services more than LINE. Could Q2 surprise to the upside? Yes. Do I have any strong evidence it might? Nope. Do I think it 50% likely that LINE will get a 10% bump? No. Do I think it 25% likely? Yes... maybe... why not?
  • So that would put fair at maybe +2.5% through terms less the cost of carrying a position and risk. And for another 3-5 months that might be worth... 1.0-1.5% in risk arb terms if the deal was highly certain to get done without any obstructions like the JFTC approval which has not yet arrived.

(link to Travis' insight: A LINE Bump - The Other Argument Against)

Esprit Holdings (330 HK) (Mkt Cap: $0.3bn; Liquidity: $1mn)

What was once a fashion marvel (and maven), Esprit has definitively fallen out of fashion. It's current market cap of $2.2bn compares with its high of HK$160bn a dozen years ago. The exit of deal-maker Michael Ying in 2000s appears to have left a void in both management and direction. Karen Lo Ki-yan, a descendent of Vitasoy Intl Holdings (345 HK)'s founder, sees an opportunity.

  • On the 8 July, Esprit received a request from North Point Talent Limited, a vehicle owned by Lo Ki, to convene an SGM to remove Anders Christian Kristiansen and Johannes Georg Schmidt-Schultes as directors. North Point held 12.074% at the time of the request. On the 21 July, the request to remove the directors, via an SGM, was withdrawn by Lo. No reason for the withdrawal (or indeed the initial removal) was provided. Kristiansen and Schmidt-Schultes remain as CEO and Group CFO respectively. Lo picked up more shares in Esprit the same day, and has bumped again to close the week at to 23.24%.
  • Chances of a takeover? Marathon and the Ying sisters are unlikely to exit here. Assuming (finger in the air), the intention is to take the company private at a 50% premium to last close, is it really worth paying $3.3bn for a "sunset" brand - or simply using that money to create a new brand from scratch?
  • Esprit is "cheap", but shares are up 100% from the May low. Esprit still has considerable work to do in its reorganisation plan, and for that reason, this insight is bearish. If Lo reloads aggressively - recent share acquisitions have been minimal - then sentiment will similarly get a boost. But Lo doesn't strike me as one to take the company private - the flip-flopping on removing the directors is puzzling. More likely she'll flip her holding for a profit to a player who does. And given the Covid-19 climate, that may not be anytime soon.

(link to my insight: Esprit (330 HK): The Claytons Activist?)

Sembcorp Industries (SCI SP) (Mkt Cap: $2.3bn; Liquidity: $14mn)

The Circulars are out for SMM and SCI shareholders for the Rights Offering and the Distribution. It's still a win for SCI. It is not awful for SMM from the point of view of being a standalone O&M business as it is getting a debt-equity bailout which lowers net leverage, and the outright big owner will now be Temasek. The earnings outlook is not great, but oil has rebounded in price since the announcement and setting itself up as a standalone will encourage expectations that Temasek would seek to merge SMM with the Keppel Corp O&M business. The Keppel H1 earnings announcement next week will likely do nothing to dispel such rumours and expectations in the big picture, even if it hurts the chances of the Partial Offer going through as planned.

  • The deal sets up very nicely for SCI holders. There are caveats. In order to get SCI cheaply, you may have to own it before you get the Distribution of SMM shares. When you receive the SMM shares, you will be part of a large crowd of people who don't want them. They may sell.
  • Based on these caveats, on a trading basis, we can expect SMM shares to fall further. Travis expects most people will not be thinking through the arithmetic clearly, so may sell down SCI as SMM falls. He expects the SMM rights to be bid immediately after they list, then get sold down as holders decide they don't want to spend the money buying more SMM shares. There is little borrow in SMM and the ratio is 5:1 so it will be nearly impossible to hedge them. If you buy the rights cheaply, you have to think you can get out of the shares.
  • IF you are a long-only fund and you own SMM, Travis would sell it now (he would have sold it on Day1 post-announcement). If you own SCI and you like it, he would strongly consider adding more and planning to sell down the SMM when you get it. If you are a hedge fund, look at the arithmetic on the block, and the hedge. SCI and SMM H1 last Q earnings are out.

(link to Travis' insight: Sembcorp Restructuring Details & Timing Announced - The Arithmetic Is Compelling)

Car Inc (699 HK) (Mkt Cap: $.7bn; Liquidity: $3mn)

Tainted by association with Luckin Coffee (LK US), Car took a bath back in April. UCAR, Car's largest shareholder entered into various agreements with SOE-BAIC, SAIC Motor (600104 CH), and Warburg-related entity Anber Gen; all the while selling down its stake, including on the "bath day". On the 20 July, Car announced last night that UCAR has terminated its agreement with SAIC; and had now entered into a SPA with Jinggangshan BAIC to acquire its 20.87% stake in Car at HK$3.10/share. Jinggangshan BAIC also signed an offer letter with Amber Gen to acquire an 8.04% of shares out (@ HK$3.10/share) - to collectively give Jinggangshan BAIC 28.91%. Amber Gen would be left holding 6.7% of shares out.

  • It's not clear, despite the investigation into UCAR, why the agreement with SAIC has been terminated. SAIC is a major auto-manufacturer, selling 6.24mn units in 2019, accounting for 22.7% of China's market. Car would provide a leg-up for SAIC's expansion into car rental - plus SAIC could provide support to Car as it muddles through COVID-19. At a guess, bringing effective control of Car under the fold of an SOE, was obligatory should any (further) unpleasantness occur - or at the very least to directly enforce oversight.
  • Car rental companies were already facing stiff competition in the face of the growth of ridesharing (Uber etc) companies. COVID-19 has added to this uncertainty, due to travel restrictions and suppression on tourism. To meet debt obligations, fleet sales could accelerate, which may call into question the carrying value of car rental fleets. UCAR selling on a day when shares were off 68.4% at one point back in April, was an unprofessional look. Removing UCAR from Car's shareholder register can only be viewed as a good thing.
  • BAIC Group is not, at the present time, going to launch a takeover for the remaining shares, making sure under the announced agreements its holding dips below the 30% MGO threshold. Warburg intends to kick out a chunk of its holding at $3.10, all but placing a ceiling on the share price. Car's shares have corrected by ~8% as I type - yet its EV/EBITDA remains at a premium to its global car rental peer average. I would avoid the company and for that reason, I label this insight bearish. The impetus for the sharp decline in April has not abated.

(link to my insight: Car Inc (699 HK): Deals On Wheels)

Accordia Golf Trust (AGT SP) (Mkt Cap: $0.5bn; Liquidity: $1mn)

Accordia Golf, the manager/operator of the golf courses that are owned by AGT, last November made a proposed non-binding bid for the shares of Accordia Golf Trust that it did not own. It took six months but at the end of June, an official bid was put forth. There was a letter from Hibiki Path Advisors, the second largest holder of Accordia Golf Trust shares, published as a press release on 3 July 2020 after the close. That letter was discussed in Major Accordia Golf Trust Shareholder Has Issues With Price & Process. Accordia Golf has now responded to Hibiki Path's letter. It is worth a read. It points out some realities. For arbitrageurs, it is also worth thinking about time, process, and cashflows.

  • Very little in this letter would mollify Travis if he were leaning towards supporting Hibiki Path's investment analysis. Sometimes, corporate respondents to shareholder objections need to take a look at things from the shareholder side, then respond in a way which will be convincing. Hibiki Path does not need to convince MBK and Accordia Golf that the bid is too low. It needs to convince its fellow minority shareholders. Hibiki Path needs two-thirds of the minority outside of itself to vote its way. MBK needs 34% of the minority to vote to agree to the Takeover.
  • Travis expects a Circular within a very short period of time and expects the contingent claims quantity is more solid than that. Clarification on the what is encompassed in those contingent claims should be addressed in the Circular.

  • Travis also believes the likelihood this gets blocked to be lower than the market seems to think. Expect total expenses on the AGT side to be less than 3% in total, and so expect some of the expenses which have already been taken (which impact the NAV) will be delivered back to unitholders. Travis would be buying aggressively at the lower half of Friday's range, and at Friday's VWAP of S$0.67428.

(link to Travis' insight: Accordia Golf Responds to Hibiki Path)

Cardinal Resources (CDV AU) (Mkt Cap: $0.3bn; Liquidity: $1mn)

Shandong Gold Mining Co., Ltd. (1787 HK) has revised its conditional Offer to A$0.70/share, a 6.1% premium to Nordgold's unconditional on-market all-cash Offer of A$0.66/share. Shandong's Offer remains subject to FIRB and Chinse regulatory approvals.

  • Cardinal's key asset is the Namdini gold project in Ghana. There has been a definitive push from the Ghanaian government to get this mine up & running. On the 17 July, the Namdini mining license received sovereign ratification for an initial term of 15 years. Cardinal's CEO Archie Koimtsidis said "This Ratification and the recent issuing of the Environmental Protection Agency Permit along with our Water Extraction Permit and Relocation Acton Plan Approval, places the Namdini Gold Project into an extremely secure and solid position for development."
  • Koimtsidis is a wily negotiator. The agreement and placement of shares with Shandong could have been construed that Nordgold was not interested in lifting its Offer; and potentially may exit at a solid short-term profit. Not to be.
  • My ongoing discussions with various interested parties in this space believe an Offer could tap out at A$0.80/share. CDV would be an accretive acquisition target for any major gold producer. I expected Shandong to sweeten its Offer and they have. You now have a hard floor of A$0.70/share. Now would be the time for Nordgold to return with a full Offer - ~A$0.77-A$0.80/share - and wrap this up. I still recommend buying here.

INEOS Styrolution India Limited (INEOS IN) (Mkt Cap: $0.2bn; Liquidity: <$1mn)

The Reverse Book Build process for the Delisting Offer of INEOS is now complete. The Offer-to-Buy Acquisition Window (which is really an Offer to Sell reverse auction window) closed today with 2,918,055 shares offered in 1,877 offers across 192 different price points ranging from INR 419 - the Floor Price - to INR 4,190 which is ten times the Floor Price. The total submitted is 66.37% of the float. Only 60.00002% was required to form a Discovered Price. Now the question is whether the buyer, INEOS, will agree to the Discovered Price and complete the transaction, or whether they will reject it. IF they reject it, they have two days to propose a Counter Offer.

  • If Travis had to bet on the "expected value" here, he would suggest it is most likely to get done at INR 1100/share, with a smaller likelihood of the Promoter proposing INR 1000 or so. He doubts they go lower than that.
  • It appears (and the calculation is not completely clear to him) that annual listing fees are on the order of US$60k/yr on the two exchanges, and audit fees and director fees required to maintain the listing would likely add hundreds of thousands of dollars a year, so for the US$6mm it would cost to pay INR 1100/share vs INR 1000/share, it seems like a risk someone might not want to take to try for INR 1,000/share and have it not get done.
  • IF a counteroffer comes, it will come by two business days after the close. Investors can watch this news ticker to check for updates. Travis expects this deal to get done, however at this point, before any news and official result comes out, we are in a kind of no-man's land where we do not know. So the binary nature of the result here is VERY binary and it will happen very shortly.
  • UPDATE: The Discovered Price has been rejected by the promoter. Travis is surprised, because they could have launched at 800-900 if they wanted (and because they applied to the Exchange when the stock was INR 700+), they could have known they'd be facing INR 900 anyway.

Zenith Energy Ltd/AU (ZEN AU) (Mkt Cap: $0.2bn; Liquidity: <$1mn)

On the 21 July, PEP/Elemental Infrastructure increased the cash price to A$1.05/share from $1.01/share. The Offer is now best and final - provided no competing proposal emerges. The Scheme Consideration will include a fully franked special dividend of A$00.14/share. More importantly, Westoz said it would vote in favour of the Scheme. Shareholders have until the 29 July to submit their proxies or to change any exiting proxy. The revised Offer price is a 51.1% premium to the undisturbed price and above the independent experts' range of A$0.89-A$1.02.

  • The independent expert opinion (starting on page 94) from Grant Thornton arrived at a fair value range (page 99) of A$0.89-A$1.02/share. GT looked at 12 comparable transactions (page 152) and backed out an average/median EBITDA multiple of 10.0x/9.8x compared to ~12.4x for Zenith under the Offer.
  • This is the second off-grid power generation specialist subject to a takeover in the last year after Pacific Energy (PEA AU) was taken private by QIC, as discussed in QIC's Move After OPTrust Counters For Pacific Energy. PEA was Zenith's most significant competitor. That deal was done at 8.1x EV/EBITDA.
  • I previously viewed this deal as a clean takeover situation - before Westoz intervened. You have an agreed deal, a solid premium to last close, together with major shareholders' support. Trading tight at a gross/annualised spread of 0.5%/6.4%. I expect this deal to get up. But it is not a particularly liquid arb situation. Only for those who can utilise the franking credits.

ARA’s Bidder’s Statement has been issued. ARA's laundry list of issues with Cromwell Property (CMW AU)'s board can be found on page 3 & 4. On page 34 - ARA said it has received a notice of no objection from FIRB. This was one issue raised by Cromwell. Cromwell says its Target Statement will be released early to mid-August. It continues to advise shareholders to reject ARA's Offer, and that the Bidder's Statement contains misleading statements and material omissions. The Offer is NOT a 100% pro-rata trade. This is a "proportional" offer, not a "partial" offer. You can only accept the Offer in full for 29% of your Cromwell holding - not a greater or lesser proportion. The is spelled out under Question 2 on page 11 of the Bidder's Statement. This was not immediately apparent from reading the initial announcement. Therefore the "arb grids" mentioned in my report are not relevant with respect to this deal. Apologies.

Iberdrola SA (IBE SM)'s unconditional offer of $0.89 for Infigen Energy (IFN AU) expires on 30 July. Iberdrola announced a conditional offer bump to A$0.92/share IF Iberdrola gets an additional 13% of shares out by 30 July. This extra 13% would effectively get them to 50+% by getting them to 37+% and they could presumably then purchase the 13% TCI owns but did not promise in the conditional purchase agreement before this (because Iberdrola was limited to 19.9%). Separately, Bidder UAC, controlled by Ayala Corporation (AC PM) made an announcement (ASX link) that it would not change the terms of its Offer. It also said it had not decided what to do with its stake in Infigen.

In Hanjin Kal Warrant TOB: Terms & Spread, Sanghyun Park discusses the tender offer for Hanjin KAL Corp (180640 KS)'s warrants. The Offer price is ₩25,000 apiece for 1.2mn warrants. It represents 33.0% of the total warrants and 1.9% of the total shares after full conversion. The tender begins on July 23 and runs until August 12. It is an all-cash deal, and the payment is on August 18.

In CCT+CMT: CMT 2Q20 Results Update & CCT+CMT: CCT 2Q20 Results Update Sumeet Singh analysed the results for Capitaland Commercial Trust (CCT SP) & Capitaland Commercial Trust (CCT SP) respectively.

In Korea M&A Spotlight: A Big Investment in S.M. Entertainment by Naver?, Douglas Kim discussed reports that S.M.Entertainment Co (041510 KS) is currently negotiating with Naver Corp (035420 KS) to sell a portion of S.M. Entertainment to Naver for about 100 billion won. Currently, S.M. Entertainment has a market cap of 791 billion won so a 100 billion won investment in the company would be worth nearly 12.6% stake int he company, making Naver the second-biggest owner in the S.M. Entertainment after the founder Lee Soo-Man who has an 18.7% stake in the company. If indeed this deal is completed, we believe it could be a win-win situation for both parties, especially for S.M. Entertainment since it would have a powerful Naver as one of its major investors. We certainly believe the completion of this deal could boost the share price of S.M. Entertainment further, whose share price is down 12% YTD.

In Reliance Jio-Google Partnership to Challenge Xiaomi’s Market Dominance in India, Shifara Samsudeen discussed Reliance Industries' announcement that Jio Platforms and Google have signed a binding agreement for an investment of INR33,737 crores (about US$4.5bn) into Jio Platforms. Google’s investment translates into a 7.73% equity stake. With Google’s investment, Jio Platforms has so far attracted US$20.22bn in investment from global tech giants as well as from private equity companies and has so far sold 32.97% equity stake on the company. This Jio-Google partnership is expected to challenge Xiaomi Corp (1810 HK)'s market share dominance in India.

STUBS

Jardine Cycle & Carriage (JCNC SP) / Astra International (ASII IJ)

JCNC was trading cheap on a NAV and stub basis this time last month (StubWorld: Matheson Buybacks As Ratio Mean Reverts; JCNC Looking Cheap). It is now even cheaper. Astra is up ~52% in the past three months, against (~1%) for JCNC, resulting in the discount to NAV at ~28%, a multi-year low (> five years). The recent bifurcation has blown through the -2STD on a five-year NAV view.

  • The implied stub of negative S$5.73/share (at the time of the insight) compares to the long-term average of (S$2.90) (negative S$2.90/share). It is now at a level from which it has had a tendency to revert over the past five years.
  • Fellow insight provider Angus Mackintosh continues to like Astra as a recovery play and a key proxy for Indonesia's economic rebound going into FY21.
  • Astra accounts for 92%/75% of JCNC's NAV/GAV. Astra recently got a boost after netting ~IDR16.5bn from the sale of its stake in Bank Permata (BNLI IJ) to Bangkok Bank Public (BBL TB) - see Permata Transaction Complete - Now For The Mandatory Takeover. Given JCNC is all-but a proxy into Astra, this appears a straight-forward mean reversion play. This stub is a set-up at these levels.

(link to my insight: StubWorld: JCNC Now Even Cheaper)

EVENTS

Skyworth Group Limited (751 HK) (Mkt Cap: $1bn; Liquidity: $3mn)

Back on the 17th June, Skyworth announced a partial buyback - 12.83% of shares out or 392.8mn shares, at HK$2.80/share, a 32.1% premium to last close. Skyworth had cash on hand of HK$5.4bn as at Dec-19, or ~HK$3bn at the parent level, netting off cash held in 57.8%-held subsidiary Skyworth Digital Co Ltd A (000810 CH) ("SDC"). More than enough to cover the buyback bill of HK$1.1bn (US$141mn). Then on the 15 July, Skyworth announced it had submitted a PN15 application to spin-off and list Shenzhen Coocaa Network Technology Company Limited (Coocaa), a non-wholly owned subsidiary of the Skyworth.

  • Coocaa’s principal businesses include an internet-based operation of a smart television system under the brand “酷开” or “Coocaa. As the bulk of the content viewed on TVs these days is via website and streaming apps, this has led to an increased demand for smart TVs. Coocaa generated profit of RMB148mn in FY19 and had a book value of RMB1.6bn as at 31 Dec 2019.
  • On the 6 June 2017, Tencent Holdings (700 HK) invested RMB300mn for a 7.7142% stake in Coocaa, implying a full value of ~RMB3.9bn. In addition, iQIYI (an affiliate of Tencent and Baidu (BIDU US)) entered an agreement with respect to its holding, with the expectation Shenzhen Coocaa is listed on any stock exchange within 60 months after 2 December 2016, and the market value of Shenzhen Coocaa is not less than RMB3bn before listing
  • Where to buy? The undisturbed forward (2020E) PER and P/B was 6.8x and 0.33x. This buyback should be EPS accretive to the tune of ~14.7%. The undisturbed price of HK$2.12 adjusted by EPS accretion of 14.7% is HK$2.432. Shares have traded above terms >70% of the time over the past five years. That number is 42% over the last three years. I believe the minimum pro-ration will be more like 30% (simply eyeballing 16% of the register who are unlikely to tender) - Travis Lundy reckons upward of 50% is feasible in light of the volume traded above terms. At 30%, that takes you to a theoretical breakeven price of ~HK$2.54; 50% to ~HK$2.60.

M&A - EUROPE

Aker Solutions (AKSO NO) (Mkt Cap: $0.4bn; Liquidity: $5mn)

On 17 July 2020, Aker agreed to acquire Kvaerner ASA (KVAER NO) in a transaction structured as a merger of equals (“statutory merger”), in which Aker Solutions will absorb Kværner. Both oil-industry suppliers are controlled by Norwegian billionaire Kjell Inge Røkke, while Norway is also a shareholder in Aker Solutions. The declared rationale of the merger is to vertically integrate to become a stronger player in the global energy industry. Both companies have been hit by the reduction of capex among the oil companies and drilling contractors, in the wake of the coronavirus. Røkke seeks to unlock synergies in a leaner company and win business opportunities in renewable energies

  • Conditions include approval on EGMs by the shareholders of each company - TRG Holding controls c. 47% of Aker Solutions votes and 40.5% of Kværner votes. There should not be any major problem to pass the merger resolution on the respective EGMs; regulatory approvals; certain third-party approvals; other customary closing conditions; no other conditions related to financing, due diligence or MAC.

JAPANESE STEWARDSHIP

Travis published a detailed thought piece on Japanese takeover governance & stewardship. One snippet - mercy or no mercy, shareholders deserve to be treated fairly by the Board representing them, and in the case of a structurally conflicted board - usually the case in such situations - by the Independent Committee. It is thus of paramount importance that such Independent Committee action take seriously their job to act in the interests of minority shareholders (even when they are in the majority as in the case of Nichii Gakkan Co (9792 JP)) to ensure that the sale is not just "not disadvantageous" as deemed by some lawyer paid to say so, but is advantageous, seen over the medium to long-term. That means stricter adherence to the METI Fair M&A Guidelines, and also the ability to provide nuance.

A wealth of information here - do check out: Japan Needs More Cowbell

TOPIX INCLUSIONS

Link-U (4446 JP) (Mkt Cap: $0.3bn; Liquidity: $3mn)

Link-U announced (J-only) they had received approval to move from MOTHERS to TSE1 as of 29th July 2020. TSE1 reassignment triggers inclusion into the TOPIX Index and I expect the Inclusion Event to be at the close of trading 28th August 2020. The Inclusion Size is around ¥1.43-1.76bn which larger than the historical median. However, the Impact (day count) of the Inclusion Event is only around 4-5 days going by 3-month ADV. This is lower than the historical median.
  • It is important to note that only ~49% of the company's tachiaigai bunbai offering got filled in April 2020. This Offering was at a price was ¥ 2,160. The current price is of ¥ 2,254 is around 4.4% above this price. Furthermore, the company's actions (the stock split in Dec 2019 and the multiple offerings announced since then) could have signaled to the market that the company was preparing for TSE1 move. This is unlikely to be a significant surprise to the market-aware investor. The Stock is around 17% lower than its all-time high of ¥ 2,725 reached in May 2020. However, it is up 18% YTD and up 85% since the March 2020 low of ¥ 1,219/share.
  • The fundamentals do not seem attractive either. The shares have not been listed long. There was a jump in revenue and profitability in the year to July 2019, and while revenues are up 14% in the first nine months of this fiscal year, OP, RP, and NP are each down 27%. The company is rich to peers in every way.
  • Janaghan Jeyakumar recommended avoiding Toumei (4439 JP) in his recent insight TOPIX Inclusion (4439 JP): Toumei Co as he felt the share offering launched in preparation for TSE1 promotion resulted in a short-term oversupply of float shares. In the month since then, the stock is 6% below the price on the date of publication (¥1,508). For reasons similar to the above precedent, he recommends avoiding this Event. Excitement relating to the TSE1 Promotion Announcement might give the Stock some momentum in the next few days but he would be prepared to bail quickly.
(link to Janaghan's insight: TOPIX Inclusion (4446 JP): Link-U Inc)

SHARE CLASS

In Tata Motors DVR: Discount Blows Out, Brian Freitas discussed Tata Motors DVR (TTMT/A IN)'s discount to the common shares Tata Motors Ltd (TTMT IN), which had blown out to 62%. This comes at a time when the lockdown in India has decimated auto sales and the stock price continues to languish near multi-year lows, though higher than the lows it hit in March. After reaching a discount of 60% late February, the discount contracted to 47% mid-March as Tata Sons started to buy the Differential Voting Rights (DVR) for the first time ever. Since then, the discount has slipped back to its previous lows and beyond. The difference in the liquidity of the two lines could be an important factor in driving the discount to historical wide levels.

LG Household & Health Care-Pref (051905 KS) is below -2DTD on a 20 day MA - this last occurred on the 4 May. But as Sanghyun notes in LG H&H 1P: Another Severe Deviation, Probably Resulting from Liquidity Gap, liquidity is an issue for 1P.

INDEX REBALS

The Hang Seng Indexes Company review of the constituents of the Hang Seng Composite Index for the September 2020 review will be made on 14 August and will be effective after the close of trading on 4 September. From the upcoming review, Biotech companies listed under Chapter 18A of the HKEX Main Board listing rules will be eligible for inclusion in the HSCI. This is a huge change given that Biotech is a big investment theme in the current environment and mainland investors could come rushing into these names. In HSCI and Stock Connect - Biotech Stocks Now Eligible; Inclusion & Exclusion Possibilities, Brian sees 22 possible inclusions in the HSCI (and consequently becoming eligible for Stock Connect) and 10 deletions (which will take the stocks off the eligible buy list and make them eligible for sell-only via Stock Connect).

On 30 September 2019, FTSE Russell proposed to assign J-REITs as an eligible security class within FTSE GEIS and associated indexes commencing in conjunction with the September 2020 FTSE GEIS semi-annual review. The inclusion would be done in 4 tranches and conclude with the June 2021 quarterly review. The FTSE will announce the list of changes as part of the September 2020 semi-annual review on 21 August and the changes will be effective after the close of trading on 18 September. In J-REIT Inclusion in the FTSE GEIS Coming Up Soon, Brian sees 53 possible additions of J-REITs to the FTSE GEIS. The impact on the J-REITs is not very high because of the tranched inclusion in the indices, but there are quite a few stocks that have over 2 days of ADV to buy.

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

Pw Medtech (1358 HK) 19.02%JPMMS/HSBC
Evergreen Products (1962 HK)15.17%KingswayUBS
Ct Environmental (1363 HK) 13.22%China Sec Sun Sec
China Silver (815 HK) 11.01%HSBCCiti
Pujiang Int (2060 HK)24.70%CMBI Win
Source: HKEx
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