Last Week in Event SPACE: Prosus/Naspers, GMO Internet, CK Hutchison, AviChina, Ant Group, Tonly

Naspers (NPN SJ) / Prosus (PRX NA)

On Friday 30 October in the morning, Prosus announced that it would conduct a US$5bn buyback of Prosus shares and Naspers (NPN SJ) shares (i.e. the subsidiary would buy shares in the parent to avoid passing down income from sub to parent which could be taxed). In total, Prosus will acquire up to US$5bn in shares in Naspers and Prosus on the open market, starting after interim earnings are released on 23 November 2020. Purchases will be made on a pro-rata (72.5%/27.5%) basis in line with the economic stakes of both companies in the Prosus/Naspers asset base and Prosus would not vote shares purchased and they would come out of the per-share calculations for EPS and BVPS. It isn't a lot in the grand scheme of things, but $5bn is $5bn, and the discount is quite wide.

• We have a catalyst. $5bn worth of buyback which is worth about 10-16% of ADV from late November to end-March. We have a very large look-through discount on Naspers despite a Day1 pop. Even if there is no "Real" spread tightening, the buyback itself creates a mechanical value accrual which means that at a flat 56% look-through discount, the Naspers/Tencent ratio would still likely gain.
• We have the possibility of additional monetisation on Tencent around the time the $5bn buyback is nearing its close. That would create expectations of further monetisation and value-realisation through further buybacks. As we approach March, the likelihood that investors realise there could be another large offering increases, which could put slight pressure on Tencent shares.
• Travis believes being long Naspers vs Tencent, and if you would like, vs Trip.com and Mail.ru, is a good trade at the current look-through value. He expects that one could see 10% Naspers outperformance vs Tencent over the next 3-4 months, which would take the discount to NAV to 50%. If Naspers+Prosus decide to sell some more Tencent in late March 2021 while the Naspers discount is still 50%, I would expect that Naspers+Prosus might decide to buy more Naspers shares back rather than pay too much for something.

(link to Travis' insight: Naspers & Prosus - A $5bn Catalyst Arrives)

GMO Internet (9449 JP) / GMO Payment Gateway (3769 JP)

The current discount to NAV of ~49% compares to the one-year average of 34%. The long-term NAV is at levels only briefly exceeded in the past eight years. The long-term implied stub - netting off GMO Payment - is at an all-time low.

CK Hutchison Holdings (1 HK) (Mkt Cap: $26bn; Liquidity: $53mn)

(link to my insight: CK Hutch: Here's Your Re-Rating Catalyst)

AviChina Industry & Technology H (2357 HK) (Mkt Cap: $3.4bn; Liquidity: $13mn)

(link to my insight: AviChina (2357 HK): Buy The Modern Army Narrative)

In Conclusions of the Corporate WVR Consultation: Small Changes for Now, Brian Freitas discusses the Stock Exchange of Hong Kong Limited published conclusions to its consultation on the Corporate WVR beneficiaries. Respondents submissions can be found here. In the interim, the SEHK will permit Greater China issuers controlled by corporate WVR beneficiaries (as of 30 October 2020) having a primary listing on the NYSE, NASDAQ and the Premium Listing segment of the London Stock Exchange (as of 30 October 2020) to pursue a secondary listing in Hong Kong. The secondary listing applicant would need to demonstrate that it is controlled by a single corporate WVR beneficiary, or a group of corporate beneficiaries acting in concert, controlling at least 30% of the total shareholder votes.

After shares were suspended ahead of trading on the 30 October "in relation to the Code on Takeovers and Mergers", that evening TEH announced a proposed privatisation from T.C.L. Industries Holdings (H.K.) Limited. (TCLH), a wholly-owned subsidiary of TCL Industries (TCLI), by way of a Scheme. The Scheme consideration is HK$12/share, a 19% premium to last close and 28% above the 30-day average close. The price will NOT be increased. No dividends have been declared, nor are any expected to be declared. Conditions to the Scheme are standard - at a Court Meeting, at least 75% of Independent Shares vote FOR the Scheme & not more than 10% of ALL Independent Shares against, or 2.531% of shares out. The headcount applies.

• The TCL group should have made a bigger show of its during the restructuring agreement, last year, as they are now paying 2x+ the MGO price of HK$5.89/share under this Scheme.
• There was clear and evident leakage on the 13 August when shares spiked 55%. I see no specific information to account for the large move, and the closing price of $12/share is too coincidental. The only SEHK release was the interim report the following day.
• I think there is enough here to get the offer done. I would argue the Real Offer Premium to the undisturbed price is ~50% given the August price move. The blocking stake is low - just 2.531% of shares out. No single shareholder has declared a holding >5%. Schroders sold below 5% in March 2018.

• There is a possibility that this is designed to be a greenmail effort. Keihanshin has enough cash and enough cross-holdings that it could easily buy out Strategic Capital and partners. This may ignite media discussion about why it would be beneficial to shareholders to turn it into a REIT, and doing so might provide some upside, but it would also be a taxable event and may not be as accretive to shareholders as one would think.
• Travis would tend to want to be long here, because it is hostile and one could imagine a white knight coming to "solve" the problem. We don't know who it would be, and we do not have a great handle on how much they would pay. Travis thinks a white knight could pay ¥2,500+/share. But at least you know where Strategic is drawing a line in the sand - ¥1,900/share.

(link to Travis' insight: Opportunistic Keihanshin (8818) Tender Offer Designed to Fail)

amaysim Australia (AYS AU) (Mkt Cap: $0.2bn; Liquidity: $1mn)

After the divestment of its energy ops was completed on the 30 September - with final net proceeds of A$51.9mn - AYS has now entered into an SSA to sell its mobile ops to Optus Mobile for A$250mn, in cash. As the sale comprises AYS' core operating business, it is subject to shareholder approval. This is a simple majority vote. No further due diligence is required on Optus' behalf. Should the sale complete, AYS expects to distribute between A$207.2mn - A$225.7mn (A$0.67-A$0.73/share) via three tranches. The sale of the mobile ops has the unanimous backing of AYS' board, including CEO Peter O'Connell, the founder of AYS.

• Subject to the mobile sale, a major distribution of A$0.50/share (including a $0.26/share fully franked dividend and a return of capital of A$0.24/share) will be paid in March 2021; a minor distribution of A$0.10/share will be paid in or around April 2021; with the balance of A$0.07 -A$0.13/share in or around October 2021.
• The "distribution" represents a distribution of profits, and is expected to be made to shareholders in the form of fully franked dividends. The remainder of the Distribution will be made by an "equal capital reduction", which requires shareholder approval. AYS has applied to the ATO for a ruling on the tax treatment of the equal capital reduction for Aussie resident shareholders. This will be known after the EGM.
• My back & forth with AYS suggests the initial purchase price is less compelling when the costs associated with a restructure and winding down are taken into account, and that this structure was not AYS' preference. Perhaps the announcement flushes out an interloper. As it stands, I don't find this a compelling arb situation.

(link to my insight: Amaysim To Be Wound-Up After Mobile Sale)

Mothers-listed Teno announced on 30th October 2020 they had received approval to move to the First Section of the Tokyo Stock Exchange as of 12th November 2020. In conjunction, they also announced a tachiaigai bunbai equity offering in order to satisfy some of the Section Transfer Requirements. TSE1 reassignment triggers inclusion into the TOPIX Index and the Inclusion Event can be expected to be at the close of trading 29th December 2020.

• The Index Inclusion Parameters are unattractive. Janaghan estimates the Inclusion Size to be ¥0.47-0.56bn and the Impact to be 3-4 days of volume going by 3-month ADV. Furthermore, the 213,400 shares to be offered in the tachiaigai bunbai sale is 57%-68% of the expected Inclusion quantity. This increased supply of float shares might offset most of the demand expected from Index buyers during the Inclusion Event.
• The company's business is growing but the recent increase in share price has made the stock overvalued against peers. The long-term revenue target set by the company in its medium-term management plan translates to a 10-year CAGR of ~17% from 2020 to 2030. However, in terms of PER (LTM), the company is overvalued vs peers especially due to the increase in share price over the last few months.
• Janaghan recommends avoiding this event. He also recommends not shorting the stock until the Inclusion Event is complete and one may never want to short this. The stock is too small to garner analyst attention, and makes too little money to be able to maintain its TSE1 listing for very long, assuming that the new TSE1 Listing Rules which went into effect on 1 November are used as demotion criteria, as promised.

Ant Group (6688 HK)

Some index providers (FTSE) count the Hs and the As together then adjust the inclusion factor. Some treat the Hs and the As as two separate stocks and they enter family (MSCI) indices separately. There are some indices which are in fixed-count indices where there is exposure above and beyond traditional float market cap indices. Then in Ant Group's case we have had changes of plan on timing.

The following commentary is moot - given the suspension of the listing - but may be referenced again in the future.

• Investors obviously should have bought as much as possible in the IPO. Barring that, Travis thought it is interesting to look at both the fact that "real money" investors may not want to sell the shares in the after-market because they will be seen to be sellers. And once they sell, it is not clear when they get back in.
• Travis expects there will be a race to buy secondary shares. Usually, the person in a race who gets an early start out of the blocks has an advantage vs others. He would not be surprised if that was the case here.
• If you buy FTSE A50 futures on the 11th of November at the close, you will have a portfolio weight of about 2.5% for Ant Group multiplied by (1+ the gain from IPO til then). If it goes up 50%, the index weight will likely be around 3.7%. You can either buy stock, or you can buy A50 futures and hedge out some of the other stocks to get exposure.

links to:
Travis' insight: Ant Group Index Effects - Mind the Squeeze
Brian's insight: Ant Group: IPO Suspension Implications