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Soho China

Last Week in Event SPACE: Soho China, Toshiba, China Logistics, Invesco Office, Yantian's Backlog

387 Views20 Jun 2021 07:01
SUMMARY

Last Week in Event SPACE ...

  • Is Blackstone just winging it on Soho China Ltd (410 HK) because $5 is too good to pass. And if they are rejected by SAMR, they know it’s because of the Pan’s, not them.
  • If you were a long-only investor in J-REITs and held Invesco Office J Reit (3298 JP), you should already be out and invested in other J-REITs.
  • Medium-term, there is now MORE pressure not less to see Toshiba Corp (6502 JP) taken private.
  • China Logistics Property Holdings (1589 HK) has over-corrected: trading around the placement price; 9% below the level where CLPH was trading ahead of the news of Li/RRJ exploring an exit; and ~9% below the post-money book value.

  • Oaktree bumps its proposal/facility for Crown Resorts (CWN AU) to $3.1bn, incorporating a 2bn private term loan and a $1.1bn loan convertible into new shares. It's an interesting proposition. Plus it sticks a $13/share handle out there.

  • This Yantian bottleneck is expected to have a more profound impact on the flow of goods in the transpacific compared to the Suez blockage.
  • 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

Soho China Ltd (410 HK) (Mkt Cap: $3.1bn; Liquidity: $6mn)

After a false start over a year ago, PRC commercial property-play Soho China announced a pre-conditional Offer from the Blackstone Group at $5.00/share, a 31.6% premium to last close. The pre-cons are mainly regulatory-related - this needs clearance from SAMR under PRC Anti-Monopoly Law. The key condition to the Offer itself requires 50% of the voting rights tendered within the Offer period. Founders Pan Shiyi and his wife Zhang Xin have given an irrevocable to tender 54.93% of shares out, leaving the couple with 9%. It is not Blackstone's intention to delist the company nor avail itself to the power of compulsory acquisition.

  • This deal is done once SAMR signs off. The only real risk to the deal is one of timing. The fact this is not a full takeover, involves a small-ish Tier 1 property play, and Pan Shiyi remains invested, should smooth over the application. My guess is the application will be assessed as a simplified procedure or simple case.
  • But then matters went awry. Reportedly Pan's son made some outspoken comments in the past irking the powers that be. Reportedly Hillhouse walked away from the deal, And then Didi Chuxing is probed by the anti-trust regulator SAMR ahead of its IPO. It was all a bit much, and shares closed Friday at xx, a $gross spread.
  • I'm guessing a chunk of the 407mn spread held via the Stock Connect programs washed thru the market Thursday and Friday. Still, this looks overdone.

Links to my insights:
SOHO China (410 HK) Suspended Pursuant To The Takeovers Code - Again
SOHO China's (410 HK) Done & Dusted VGO

Invesco Office J Reit (3298 JP) (Mkt Cap: $1.8bn; Liquidity: $31mn)

We got the result of the Starwood Tender Offer. Invesco needed 50.00% + 1 share. They already owned ~6% so needed 44+% to get them over the minimum hurdle. They got 348,378 units, which was just under 4.0%. That was obviously a sign to them they weren't going to win this on the "merits" of having the only live deal on the table given the manifest disadvantage of having a "weak" tender agent and a hostile target (not to mention other disadvantages). Now shares are trading ¥22,500-22,550 - at the time of Travis Lundy's insight - against the ¥22,750 deal scheduled to be launched Friday and go for 26 business days (until 27 July?) when they were trading ¥22,700 this morning. The Invesco deal should be an easier sell to investors and traders.

  • If Travis were an arbitrageur who had gotten in at all the right times, he would be already out and would have walked away. IF ANYTHING, he would be short at ¥22,600/share or higher.
  • Travis sees a risk that this deal does not complete because it does not reach 54.1% because of the need to get passive investors tendering or lending. IF it does NOT go through, then you want to be short at or near terms. IF you are short and it goes through, you want to cover your short ASAP. You do not want to be squeezed by the short covering which might come from having a successful tender offer.
  • IF the tender offer is successful, when it gets deleted from JAPANESE indices, there will be a lot of buying of OTHER J-REITs. That will be about ¥50bn of buying of TSEREIT Index. When it gets deleted from GLOBAL indices, that ¥50bn will be spread around global REITs. For Japan-focussed funds however, it will have to go into J-REITs and that should provide some buying pressure on other J-REITs - particularly when the index changes.

China Logistics Property Holdings (1589 HK)(Mkt Cap: $1.6bn; Liquidity: $3mn)

On the 9 June, CLPH announced a placement of 220mn new shares at a placing price of $3.54/share, an 18.24% discount to last close. Given the market anticipated a possible change of control after CLPH announced on the 29 December 2020 Li Shifa (chairman, holding ~28.2%) and RRJ Capital (~23.35%), were "conducting a preliminary strategic review of their stakes", the market response was swift. Shares closed down ~20% at HK$3.45. On Thursday CLPH announced it had completed the placement. What is interesting is that JD.com Inc. (9618 HK) bumped its stake to 10.11%, on a fully diluted basis, from 9.87% (pre-placement), the result of which sees CLPH in breach of Hong Kong's public float.

  • It does, on the surface, appear JD.com is signaling to the board its dissatisfaction with the placement. Yet the bigger picture is that this bump in the % holding is indicative of their interest in the company. There is clear interest from Jingdong Logistics Group Corporation, the wholly-owned vehicle of JD.com that holds shares directly, in CLPH's logistic assets.
  • For such a small placement, it would appear Li/RRJ are still keen to exit their holdings. The fact ESR did not participate also, and has not lifted its stake since the placement announcement, suggests it is probably not in the running for an Offer for the whole company; and indeed, may be a willing seller.
  • I expect JD.com wants to lift its stake (significantly) higher from here, given it is cashed up following its recent IPO. But it does get weird when the target is in contravention of the listing rules, even if considered a minor infraction. Perhaps this is CLPH's way of forcing Li/RRJ's hands to sell.

(link to my insight: CLPH (1589 HK): Free Float Breached As JD.com Bumps Stake)

Toshiba Corp (6502 JP) (Mkt Cap: $19.8bn; Liquidity: $159mn)

After Toshiba released the damning Independent Investigative Report (discussed in Toshiba's 2020 AGM Investigative Report Is Damning) Thursday, shares fell Friday 1.6% in what some described as "the highest trading volume since earnings a month ago" and which Travis saw as... meh? There was an Emergency Board Meeting last Sunday at Toshiba to review the report and to discuss. The Board came out late this evening with a revised director slate, and news of executive retirements. That may not go far enough.

  • We have a new CEO - Tsunakawa-san- who is likely there on an interim basis. Culture matters, and Toshiba hasn't had the right tone at the top for a long while.
  • It is possible that Toshiba's problems put it in the "too hard" bucket for some investors, but it has clearly become more event-y because of the report. PE Firms must be salivating over the possibilities now that the governance aspect of taking it private becomes important because it is so woeful.
  • Medium-term, the stock is cheap to fundamentals and how fundamentals will evolve. Medium-term, activists are in the drivers' seat. I do not believe that activists will let Mr NAGAYAMA continue to wield influence the same way. We will find out in 11 days' time whether they still own as much as they used to or whether active foreign institutional investors were the large sellers into the TOPIX inclusion.

Crown Resorts (CWN AU) (Mkt Cap: $6.3bn; Liquidity: $10mn)

Oaktree has increased its proposal/facility to $3.1bn from A$3bn previously, incorporating a 2bn private term loan and a $1.1bn loan convertible into new shares. The facility would be used to selectively buyback CPH's shares in CWN. The convertible would be convertible into new shares of CWN at A$13/share, with such conversion capped at 9.99% of Crown's outstanding shares.

  • Blackstone's $12.35/share didn't make the cut. Star's $12.50/share tilt is unlikely to find support either, and it is doubtful $13/share (for all shares) - using Oaktree's indicative price level - will generate sufficient enthusiasm.
  • Yet Oaktree's proposal seeks to reduce Packer's stake, plus position itself with a <10% stake, meaning it is unlikely to require prior approval from the regulatory as to a "suitable person" test.
  • Despite the positive aspects of this proposal, the pushback may be that Crown's board may prefer to back an Offer which is simply cleaner in scope. I still believe a board-backed transaction requires a clean A$14+/share handle, in cash, to get up. That, or a material uplift in Star's scrip ratio.

(link to my insight: Crown Resorts (CWN AU): Oaktree's Intriguing Proposal)

On the 27 April, Bingo Industries (BIN AU) announced it had entered into Scheme with Macquarie Infrastructure and Real Assets (MIRA). Shareholders have the option to receive either A$3.45/share in cash for each share held, or a mix of cash and unlisted stock worth ~A$3.30/share. Daniel Tartak, Bingo's CEO, and Ian Malouf, Bingo's NED, have stated they intend to elect the mixed condition in respect of their shares - ~31.53% of shares out. Bingo also intends to declare a fully franked special dividend of up to A$0.117/share, to be paid on or before the implementation of the Scheme. The consideration under the Scheme will be net of this dividend. The Scheme Booklet is now out. The Scheme Meeting will be held on the 11 July, with an expected implementation date of the 5 August. This is also done. Link to my insight: Bingo Industries (BIN AU): Scheme Booklet Out. EGM Tabled.

On the 16 April, Tilt Renewables Ltd (TLT NZ)announced it has amended the terms of the Scheme Implementation Agreement (SIA), such that Mercury NZ Ltd (MCY NZ) and PowAR would now pay NZ$8.10/share, up from NZ$7.80. The SIA had also been amended to include the removal of provisions allowing Tilt to evaluate any competing proposal to the Scheme or to terminate the SIA if a superior proposal were to be received. Given the SIA cannot be terminated in such circumstances, neither Mercury nor Infratil are released from their voting commitments. This means that the emergence of a superior alternative transaction is remote unless the SIA terminates due to reasons such as a condition not being fulfilled. The Scheme Booklet is now out. The Scheme Meeting will be held on the 14 July, with an expected implementation date of the 3 August. This looks done. Link to my insight: APN Property (APD AU): Scheme Booklet Out. EGM Firmed.

Back on the 30 April, aged-care Aussie listed operator Japara Healthcare (JHC AU) made an announcement it had received an unsolicited, indicative, conditional, and non-binding Offer from Little Company of Mary Health Care - otherwise known as Calvary - by way of a Scheme, at A$1.04/share. On the 5 June, Calvary bumped the indicative Offer price to A$1.20/share. JHC's board concluded it was appropriate to Offer Calvary due diligence access. Now the Bolton Clarke Group has made a conditional, non-binding indicative proposal by way of a Scheme, at A$1.22/share. The Offer is subject to due diligence, financing, unanimous support from JHC's directors, and final approval from the Bolton Clarke board. Despite the potential for a bidding war, JHC looks fully priced here at A$1.25/share. I wouldn't chase it. And if you entered around the time of Calvary's first approach, I'd exit. Link to my insight: Japara Healthcare (JHC AU): Bolton Clarke Spoils Calvary's Charge.

Back on the 11 May, real estate manager Apn Property Group (APD AU) announced it had entered into a Scheme with Dexus Property (DXS AU) at a price of A$0.915/share (including a A$0.015/share dividend), a 50% premium to last close, and a decade-plus high. The Offer had the unanimous backing of APN directors. In addition, APN directors holding 33% of APN's outstanding shares intend to vote in favour of the Scheme. Separately, APN Chairman Chris Aylward had granted Dexus a call option over 19.9% of APN's shares, exercisable in the event a competing proposal. The Scheme Booklet is now out. The Scheme Meeting will be held on the 27 July, with an expected implementation date of the 13 August. Done & dusted. Link to my insight: APN Property (APD AU): Scheme Booklet Out. EGM Firmed.

EVENTS

China's “Suez Blockage” Disruption

COVID-19 prevention and restriction measures enacted at Southern China ports have created a disruption on a scale that Ap Moller - Maersk A/S (MAERSKA DC) warns is greater than the six-day blockage of the Suez Canal in March. Late last week it was estimated Yantian International Container Terminals (YICT), operating at around 20% capacity, had not handled 357,000 TEU in the preceding two weeks, exceeding the 330,000 TEU affected by the six-day blockage at the Suez Canal. With delays up to 16 days, Maersk, one of the initial shareholders in Yantian, said that 84 of its vessels have omitted Yantian and Shekou to protect schedule reliability.

  • Transpacific carriers are hitting Asia to US shippers, with general rate increases of up to $3,000 per 40ft, with some carriers now asking $17,000 per 40ft for US east coast ports. Some importers will be caught between fixed prices agreed with major retailers and highly elevated freight rates.
  • Container shortages and delays will severely impact companies’ ability to deliver to customers. Industries will face shortages of materials. At such time as this pent-up export cargo does move, there will be a knock-on effect as this cargo hits European and US ports, given both already face stretched landside operations, specifically rail carriers being unable to clear the terminal.
  • Cosco Shipping Holdings Co., Ltd (H) (1919 HK) looks cheap. This is predominantly a container shipping company. 418% EPS growth forecast in FY21. FY22E EPS currently half that of FY21E's, although those figures are continually being revised upward.

(link to my insight: Game Of Ports: China's "Suez Blockage" Disruption)

Adani Green Energy (ADANIGR IN) (Mkt Cap: $22.5bn; Liquidity: $14mn)

In the past year, Adani Enterprises (ADE IN) shares are up 972%. Adani Gas Ltd (ADGAS IN) is up nearly 350%. Adani Transmission Ltd (ADANIT IN) is up 669%. Adani Ports & Special Economic Zone (ADSEZ IN) is up 147%, Adani Power Ltd (ADANI IN) is up 295%, and once market-favourite Adani Green was up a relatively meagre 254%. The previous Friday, the total market capitalisation of Adani Group companies was Rs 9.5 lakh crores. Of that, 69.2% of that was owned by the promoter group - roughly US$90bn worth, and that is 2% off lifetime highs earlier in the week last week. The run has been impressive.

  • On the 14 June, almost all the Adani group companies started off limit down and stayed there or were down 10% or more for much of the day. The ostensible reason for this was that overnight, as reported in the India Times and Economic Times, the National Securities Depository Ltd (NSDL) froze the accounts of three of these FPIs - Albula Investment Fund, Cresta Fund, and APMS Investment Fund - which together controlled (as of the previous Friday) Rs 435bn of shares in Adani Group companies. Adani Ports subsequently announced to the exchange that the news headlines about the frozen accounts was, in fact, "blatantly erroneous," and "done to deliberately mislead the investing community"
  • What Does The Street Think? The Street mostly doesn't. Neither Adani Green Energy nor Adani Total Gas have any coverage as far as Travis can tell. Adani Enterprises and Adani Transmission each have one analyst at DAM Capital Advisors. Adani Power has one analyst target price at less than a third of the current price; that is at Edelweiss. Adani Ports - the only Adani Group company without a large holding by Very Adani Funds - has 20 analysts covering the stock and revenue and earnings are expected to grow sharply in the years ahead.
  • Investment conclusion? Stay away. Maybe run away.

Links to:
Travis' insight: The End of Parabolic Moves for Adani Group Companies?
Brian Freitas' insight: Adani Group - Confusion Reigns and Possible Index Impact

STUBS

Yuexiu Property (123 HK) / Yuexiu Services (6626 HK)

YSG is the latest property management service company to list in Hong Kong. The Offer Price range is HK$4.88-HK$6.52/share. The Offer Price will be announced on the 25 June. YSG is the spin-off of Yuexiu Prop, which will own 68.9% in YSG after the IPO, down from 91.9% currently, before over-allotment. YSG will raise HK$2.1bn (US$0.27bn), before over-allotment, at the mid-price of the IPO range. On an FY20 PER metric, YSG is pitched at a small premium to a basket of peers, and generally exceeds similar-sized property management companies.

  • Performance of recently listed property service companies has largely been about "the bigger, the better". The smaller cap companies have generally underperformed. There are numerous choices in this space. I don't see a compelling investment thesis to go long YSG, especially against larger, and more liquid service companies. Let's see where the company is priced in a little over a week.
  • Separately, Yuexiu Property appears cheap but has historically traded at a discount to peers. That discount is currently narrower versus the historical average. And it's not a strong parent/sub relationship - with the holding in YSG accounting for ~21% of market cap, using the mid-price of the IPO range.

M&A - EUROPE

On 16 June, EQT Infrastructure, a fund managed by EQT AB (EQT SS) , announced a voluntary takeover bid for 100% of the shares of Solarpack Corp Tecnologica (SPK SM), a developer and owner of solar photovoltaic plants, mainly active in Spain, Chile and India. Consideration is €26.5/share, in cash, for 100% of the shares, for an implied equity value of €881.2 mn and an implied EV of €1,258.7 mn. This is 10.1x EV/Fwd Revenue and 18.7X EV/Fwd EBITDA. EQT Infrastructure has signed irrevocable agreements for 50.957% (with €5 mn break-up fee, c. 0.6% of the transaction). Link to Jesus Rodriguez Aguilar's insight: EQT/Solarpack: Friendly Take-Private Deal.

In his previous Insight about Sanne, Jesus said an improved price for the intended offer by Cinven for Sanne Group PLC (SNN LN) before the PUSU deadline was highly likely (see Cinven/Sanne: PUSU Deadline Is Tomorrow). On 11 June Cinven increased the price of its possible offer from 850p to 875p, which may be the prelude to the final stages to the game of brinksmanship between Cinven and Sanne. The Board of Sanne confirmed it had consequently decided to enter into discussions with Cinven. The Takeover Panel consented to an extension of the PUSU deadline, until 17:00 on 9 July 2021. Link to Jesus' insight: Cinven Sweetens Possible Offer for Sanne.

PAIRS

The recent split-off involving Mando Corp (204320 KS)/MMS combined with a big spread in the share price of Halla Holdings (060980 KS) vs. Mando Corp presents an attractive entry point for a pair trade between Halla Holdings (long) and Mando Corp (short). Link to Douglas Kim insight: Halla Holdings Vs. Mando Corp Pair Trade Involving Mando Mobility Solutions Split-Off.

INDEX REBALS

KRX BBIG Index Rebalance Preview. Brian expects the following changes:

SET50 June Index Rebalance. IRPC PCL (IRPC TB), KCE Electronics PCL (KCE TB), Sri Trang Agro Industry (STA TB) and Sri Trang Gloves (Thailand) Public Company Limited (STGT TB) have been added to the index, replacing Asset World Corporation (AWC TB), Bangkok Commercial Asset Management (BAM TB), TOA Paint (Thailand) (TOA TB) and VGI PCL (VGI TB). Link to Brian's insight: SET50 June Index Rebalance: Four Changes Announced; One More Coming Up Soon.

FTSE GEIS Sep Index Rebalance Preview. Expected upward migrations from the All-Cap to the All-World index include Hangzhou Silan Microelectronics Co., (600460 CH), Shimge Pump Industry Group (002532 CH), Hygeia Healthcare Group (6078 HK), Wuxi Shangji Automation Co-A (603185 CH), Akeso Biopharma Inc (9926 HK), Shanxi Taigang Stainless A (000825 CH), 360 Finance, Inc. (QFIN US), Joinn Laboratories China Co-A (603127 CH), China Meidong Auto (1268 HK), Jinke Smart Services (9666 HK) and China Education Group (839 HK). Expected downward migrations from the All-World to the All-Cap index include Beijing Lanxum Technology A (300010 CH), Hangzhou Century Co Ltd A (300078 CH), Thaihot Group Co Ltd A (000732 CH) and Zhejiang Wanma Co Ltd A (002276 CH). Link to Brian's insight: FTSE GEIS Sep Index Rebalance Preview: China To See A Lot of Change.

FTSE GEIS Index Rebalance Preview. Brian sees Adani Transmission Ltd (ADANIT IN) and SK Bioscience (302440 KS) being included in the FTSE All-World index, while stocks like Alkyl Amines Chemicals (AACL IN), ESR Kendall Square REIT (365550 KS), Jubilant Ingrevia and Brookfield India Real Estate Trust (1862893D IN) could be added to the All-Cap index. Link to Brian's insight: FTSE GEIS Index Rebalance Preview Sep 21: Asia Ex Japan Ex China Edition.

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

Bonjour Holdings (653 HK) 59.88%Hang SengBocom
Bank Of Zhengzhou (6196 HK) 14.98%Kim EngGlory Sun
CircuTech (8051 HK) 50.58%GSIB
Source: HKEx

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

Name

% chg

Into

Out of

JiaXing Gas (9908 HK)11.51%BocomICBC
True Partner (8657 HK)13.90%JPMOutside CCASS
JW Therapeutics (2126 HK) 10.83%CitiOutside CCASS
Source: HKEx
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