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Last Week in Event SPACE: Toshiba, Cathay, OFAC's Walk Back, Trad Chi Med, Enplas, Car, Japan Asia

325 Views31 Jan 2021 07:00
SUMMARY

Last Week in Event SPACE ...

  • Toshiba Corp (6502 JP) being reassigned to the TSE1, and in turn to be included in TOPIX, is a rare species on account of its size, and one of this anticipation is practically mythological.
  • Cathay Pacific Airways (293 HK) plugs another hole with a CB as further costs loom under new quarantine guidelines.
  • There appears to be a partial stand-down by OFAC. It may be an olive branch to China. It may not be. In the meantime, one must treat the situation as only offering a delay.
  • Sinopharm - reportedly with Ping An Insurance Group Co and executive director Wang Xiaochun, collectively holding a 49.4% stake - are set to take China Traditional Chinese Medicine (570 HK) private.
  • Enplas Corp (6961 JP) are not playing around as they reload another large buyback.
  • Car Inc (699 HK) was trading wide to terms as investors avoided second-guessing an opaque regulatory review process and an oddly consistent seller. The pre-conditions have now been satisfied.
  • The previous Offer for Japan Asia (3751 JP) was too low. The Chairman and Carlyle have responded by doubling the bid.
  • 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)

EVENTS

Toshiba Corp (6502 JP) (Mkt Cap: $15bn; Liquidity: $70mn)

The NEW News is that on the previous Friday the TSE announced that Toshiba would be reassigned to the TSE1 on 29 January. According to TOPIX Index Methodology (25 Dec 2020 version), this means it will be included in TOPIX as of the last trading day of February, which means the index inclusion event is at the close of 25 February 2021. Toshiba itself made a flowery announcement full of words about the seriousness of its governance and compliance. Long-suffering activists may rejoice. This creates liquidity for a partial exit.

  • It's been a rough road for the net 40% of holders who are foreigners who bought in 2017 and did not sell into the buyback at higher prices in 2019. There are 58mm shares to buy on 25 Feb for TOPIX inclusion. That is 13% of shares out. Active foreign holders likely own just over 50% of shares out vs an average of 18-20% of blue chips in Japan (as discussed in Toshiba: Kioxia IPO Impact & Activist Positioning, foreign ownership of Japanese stocks has ranged from 29-31% since 2013).
  • This whole situation is quite complicated. Shares aren't up enough since late 2017 to make activists feel good. Shares have done nothing since a month or so after the Share Placement three years ago. And an explosive rebound in profitability has not come. This TOPIX inclusion was supposed to happen after the shares had gone up a lot. The Kioxia IPO/monetization and resulting buyback has yet to happen.
  • Travis Lundy would want to own already (last insight was bullish tilted). He expects a LOT of people know about this trade and are anticipating it. He would watch out for the risk that an event-trader unwind or other active fund selling could pressure the stock starting a day or two before inclusion day. He expects that passive funds will not put on risk prior to the 25th of February.

links to:
Travis' insight: Toshiba Finally Gets Into TOPIX but Beware the Baku (It's Complicated)
Janaghan Jeyakumar's insight: TOPIX Inclusion Trade Summary: Jan 2021

Cathay Pacific Airways (293 HK) (Mkt Cap: $5bn; Liquidity: $10mn)

After Hong Kong's government planned to impose a 14-day quarantine and seven-day medical surveillance on all aircrew, Cathay announced it would have a "significant impact on our ability to service our passenger and cargo markets" and would add "a further increase in our cash burn of approximately HK$300-$400 million per month". In effect, the uptick in cost from the new quarantine measures negates the cost savings from the cessation of Cathay Dragon announced last October. Cathay subsequently announced the issuance of a HK$6.74bn 2.75% convertible bond due 2026.

  • The conversion price is HK$8.57/share, a 30% premium to the last close of HK$6.59/share. Assuming full conversion, these shares represent 10.89% of shares out on a fully diluted basis. Upon conversion, together with the exercise of warrants held by the Hong Kong government, Swire Pacific (A) (19 HK) and Air China Ltd (H) (753 HK)'s effective stakes would decline to 37.91% and 25.27% respectively from 45.00% and 29.99% currently.
  • Cathay increased its passenger capacity by 8% in December compared to November. Passengers carried (both Cathay Pac and Cathay Dragon combined) in December of 39.9k (18.4% load factor) was down 98.1% yoy. For cargo, December tonnage was up ~3% month-on-month with a load factor of 80.3%, up 13.9pt from a year earlier. Consensus estimates place Cathay FY21E's EV/EBITDA at 11.3x vs peers of 13.6x. Consensus estimates have revised down FY21E EBITDA by 35% in the last six months. The Street's target price of $7.68/share is down 2% in the past month, but up 20% in the last three months.
  • Vaccine rollout and a hard turnaround in global tourism/air travel appear highly optimistic. Look no further than the AstraZeneca PLC (AZN SS) saga in Europe. I think Cathay has further to fall from here. For Swire Pac, despite trading at a 0.3x 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, its remaining stub ops are loss-making and/or unexciting. I would also expect large impairment charges for Swire Properties (1972 HK) amid declining rents and a surge in vacancy rates.

(link to my insight: Cathay Pacific (293 HK): Back To Terminal)

OFAC Extends the Deadline On “Names Closely Match” Chinese Military Company Transaction Bans

On 27 January, OFAC (Office of Foreign Assets Control) released an amendment to the General License 1 called General License 1A which replaces General License 1. It permits transactions in securities whose names closely match the entities covered by Executive Order 13959 but have not been listed by OFAC in its non-SDN list. This permission runs through 27 May 2021. MSCI announced that it will not proceed with the deletion of the five securities it referenced in its communication on 26 January. FTSE announced similar treatment for its list.

  • All of the names to date captured by the Executive order have been on the Quiddity list since just after midnight EST on 12 November 2020 and were reiterated in the updated list on 31 December 2020 when OFAC made its longer list and CGN Power Co Ltd H (1816 HK) has been noted in the Quiddity Weekly H/A spread Recommendations series as a likely Trump name as yet unannounced.
  • Unlike CNOOC Ltd (883 HK) which has seen considerable Southbound buying since the Trump EO was announced, and which immediately underperformed a peer basket and has not recouped its underperformance, indicating that a large chunk of foreign ownership has been unwound; in the case of CGN, Travis does not believe that a significant unwind has taken place, despite it pretty obviously being on the list. CGN Power starts from a disadvantage that Southbound is already a significant portion of its shareholder register. Yes, Southbound can buy more, but it is a large chunk to buy.
  • Travis would buy weakness on the name, but it would have to be a decent weakness. He suggested watching for how the H/A spread trades on the 26th and early into the 27th. He would want to buy with a wider H/A spread, and with a lower price.

Following the GameStop Corp Class A (GME US) saga, in HK Shorts: Squeeze-O-Meter Brian focused on some highly shorted stocks in Hong Kong that have seen prices jump along with volume surge, such as Ping An Healthcare and Technology Company Limited (1833 HK), Hang Seng Bank (11 HK), Vitasoy Intl Holdings (345 HK), China Literature (772 HK), Bank of East Asia (23 HK), MTR Corp (66 HK), Want Want (151 HK), Samsonite (1910 HK) and Wharf Real Estate Investment (1997 HK).

In TOPIX FFW Rebal: Proceeding But Not Ahead of Plan, Travis flagged with one day to go, that it appeared as if those who put on an anticipatory trade prior to the actual announcement on 8 January have started to exit. This is as he had warned in The Delayed TOPIX FFW Rebalance: $32bn To Trade.

M&A - ASIA

China Traditional Chinese Medicine (570 HK) (Mkt Cap: $2.8bn; Liquidity: $8mn)

According to a Reuters article, Sinopharm Group Hongkong Co, an indirect wholly-owned subsidiary of China National Pharmaceutical Group Corporation and CTCM’s major shareholder, is teaming up with the next two biggest stockholders, Ping An Insurance Group Co and executive director Wang Xiaochun, collectively holding a 49.4% stake, to take CTCM private. The rumoured price tag is $5.10/share, a 19% premium to the last close of $4.30/share. CTCM's shares were up 6.7% ahead of CTCM's suspension this past Wednesday afternoon.

  • CTCM is incorporated in Hong Kong. If an Offer was tabled, the intention would be to delist the company, and a Scheme provides a binary outcome. If one (or more) of the current shareholders was making the Offer, they would be required to abstain at a Scheme Meeting, The headcount test would NOT apply. Given CTCM's direct chain of command up to SASAC, PRC regulatory approvals attached to the Offer, such as SAFE, will be rubber-stamped.
  • Why now? Hong Kong-listed China TCM plays have generally lagged mainland-listed Chinese traditional medicine firms during COVID-19. Presumably, the intention of the Offeror(s) is to relist CTCM in China to capitalise on higher expected valuations. Zhangzhou Pientzehuang Pharmaceutical Co (600436 CH), a PRC-listed peer cited by Reuters, with a market cap of RMB178bn, is up 145% in the last 12 months, compared to 10% for CTCM.
  • What price? $5.10 is an okay premium, excluding today's share price gain, ostensibly due to news leakage. $5.10/share backs out a trailing/LTM/forward PER of 14.5x/9.8x/10.2x. That doesn't appear overly expensive. A basket of peers cited by the IFA at the time of CTCM's VGO in 2013, when Sinopharm first became a shareholder, currently trade at 19.4x/14.9x/8.0x. ZPPC trades at a trailing and forward PER of 108.1x and 84x. Optically, a $5.50/share Offer appears more fair, or 36% upside from the last closing price.
  • UPDATE. CTCM announced late Friday that Sinopharm Hongkong is currently exploring a proposal to privatise the company. No price was announced. Shares to resume trading.

(link to my insight: Trad Chi Med (570 HK): Sinopharm's Feverish Proposal)

Enplas Corp (6961 JP) (Mkt Cap: $0.4bn; Liquidity: $7mn)

The company has been buying shares back. Since the start of the fiscal year, they have bought back 42% of the Real World Float. Now they are aiming at roughly 19% of what is remaining with another buyback announced today. By end of February the active float in this name will have been cut by half in a year.

  • The company has been buying just under 25% of volume relatively consistently. Travis would expect that after the next 300,000 shares are purchased, then the stock could be purchased on-market afterwards at that pace. One should be able to time the end of the buyback reasonably closely.
  • Travis thinks one could short around ¥5,000-5,500 safely, especially towards the end of the buyback. He would cover quickly when it fell. If one were to short into the end of the buyback, then buy back when it fell after you expected it to have ended, and in particular buying back on the day after the announcement of the completion of the buyback, that would be a good trade. It has been good three times already. Do not expect the company to change its stripes.

Car Inc (699 HK) (Mkt Cap: $1.1bn; Liquidity: $6mn)

Back on the 13 November MBK tabled a pre-conditional general cash Offer of $4.00/share for Car, a 17.99% premium to last close. On the 25 November, China's State Administration for Market Regulation (SAMR) announced it was reviewing the MBK/CAR deal as a simple case. Under the simplified procedure, SAMR generally grants clearance in 30 days. Two months elapsed. For some investors, it was preferable to buy this mid $3.80's (where possible) after SAMR signing offer, rather than second guessing the regulatory process and a consistent seller (Warburg/Amber).

  • On the 25 January, Car announced the pre-conditions have been fulfilled and the Composite Document will be despatched on or before 29 January. UPDATE - this has been delayed to the 1 Feb.
  • The Offer is subject to a 50% tendering condition - with MBK holding 47.41% at the completion of its SPA with UCAR, together with irrevocables. This is now done.

(link to my insight: Car Inc (699 HK): No, We Are Not Missing Anything)

Japan Asia (3751 JP) (Mkt Cap: $0.3bn; Liquidity: $3mn)

Janaghan who wrote about this deal on 5 November asking the question Japan Asia (3751 JP) Management Buyout: Should There Be a BUMP? where the obvious answer was yes because a) it was too cheap, and b) the substantial debt meant that buying it one turn of EBITDA higher meant a 40% bump in share price, and c) it wasn't going to be that easy to get to the minimum because the acquirers did not have that many friendly shareholders on the register. The bid by the Chairman and Carlyle is now doubled, from ¥600/share to ¥1,200/share. This is probably a knock-out bid.

  • Practically-speaking, if the bidder is willing to do this trade at ¥1,200/share instead of ¥600/share, their spreadsheets would probably allow them to go higher still. And if they are doing this and getting a 20% IRR out of it the way they are structuring it, then yeah, it's probably worth a bit more, but I can't imagine Murakami-san going higher than that to try to test them. He doesn't want the Continuing Businesses at that price.
  • Expect future Carlyle bids will be tested by people who don't do the work to understand this deal. But this one is complicated, and they are not showing themselves to be the "bad guy" in this, even though they could pay more on the back end. Travis also did not think that Yamashita-san and his company would be willing to a) up their investment 40-fold or more, AND b) give up ¥12bn of cash when he seemed unwilling to up his bid in discussions with Murakami-san.
  • As a risk arb, Travis would be fine buying this at a tight spread to ¥1,200/share because it is short-dated and he do not expect there to be that many people willing to hold out on the hopes they'll get a few more yen out of it. Many arbs will bail because they will look at their gains, and the gap risk to "undisturbed" and decide to get out. This may trade at a high annualized rate because of that.

(link to Travis' insight: Japan Asia Group (3751): Murakami Wins the Mother Of All Bumps +100%.)

FGV Holdings Bhd (FGV MK) (Mkt Cap: $1.2bn; Liquidity: $7mn)

Subsequent to contentious allegations over a land lease agreement (LLA), on the 8 December, government-backed FELDA announced a possible mandatory takeover (MTO) of FGV at RM1.30/share, a 2.36% premium to last close. FELDA, holding a 36.61% stake in FGV, additionally entered into conditional SPAs to buy the 6.10% and 7.78% stakes held by Kumpulan Wang Persaraan and Urusharta Jamaah for RM658mn. Those SPAs were completed on the 22 December, triggering an unconditional MTO. This Offer was unconditional as FELDA held 50.49% when taking into account Parties Acting in Concert (PACs).

  • The Offer Document was despatched on the 12 January, with the First Closing Date on the 2 February. The Independent Advice Circular (IAC) has now been despatched. Not surprisingly, the independent advisor (RHB) considers the Offer is Not Fair, but Reasonable, and therefore recommends shareholders to accept the Offer.
  • The Offer is opportunistic in my view, however, the MTO is there for the taking. Currently trading to terms.
  • UPDATE: FELDA has extended the closing date to the 16 Feb. It currently holds 69.94%.

First REIT (FIRT SP) (Mkt Cap: $0.1bn; Liquidity: $2mn)

Last week, after gaining approval at its EGM, Singaporean healthcare REIT, First REIT launched a renounceable Rights Issue to raise gross proceeds of approximately S$158.2 million. First REIT was facing a significant refinancing hurdle, with approximately 80.2% (or approximately S$395.7 million) of its debt coming due within the next 17 months. To meet their debt obligations, the company negotiated with lenders to refinance their existing S$400 million secured loan facilities with a new S$260 million loan facility. Although their lenders agreed to this, it was conditional on First REIT being able to raise the remaining S$140 million though a rights issue. The sponsor group of First REIT, OUE Ltd (OUE SP), has provided an irrevocable undertaking to backstop the entire Proposed Rights Issue.

  • This has been a disaster for holders. They have limited downside to excess float dilution unless the stock goes up first because OUE is back-stopping the whole thing 2cts lower. Leverage will be lower, deposit higher, base rent lower but variable rent higher, and because of how far the stock has fallen, it looks like on base rent alone, this is too cheap now.
  • In the rights trading period, there will be a chance to add exposure. Some people will sell the rights (which you can buy and exercise) and some will sell the shares. Longer-term, if one is betting on a rising middle class in Indonesia, this is likely to be a decent instrument, but hospitals can be political.

(link to Travis' insight: FIRST REIT Rights Set FIRST REIT Right. Right On)

Penguin International (PBS SP) (Mkt Cap: $0.1bn; Liquidity: <$1mn)

On 21st December 2020, Singapore-based builder and operator of aluminium high-speed boats Penguin notified that their Chairman and MD were in talks with a "potential investor" regarding a "possible transaction". On 21st January 2021, a Voluntary Conditional Cash Offer was launched by Emet Grace Ltd. with an intention to take the company private. The Offer Price is S$0.65/share in cash.

  • This is a friendly all-cash Deal. The Acquirer is 55% owned by Penguin's Chairman and 5% owned by a Penguin's MD. The remaining 40% is owned by Tan Keng Soon who is described in the Deal Announcement as the founding partner of Singapore-based Dymon group. The Offer is conditional on the Acquirer has to reach a stake of 50% (110,084,887 shares).
  • The Offer Price translates to a premium of +30% to the undisturbed price of S$0.50 on 18th December 2020. It is also +35.7%, +42.5%, and +44.4%, respectively, higher than the stock's 1-month, 3-month, and 6-month VWAPs.
  • Janaghan would be long with an expectation for a bump. The fall to undisturbed price of S$0.50 is 23%. A bump to S$0.70 would translate to a gross return of 7.7% which would be 23.1% on an annualized basis assuming 4 months to settlement. The time to settlement could be shorter than this too.

Hoosiers Holdings (3284 JP) (Mkt Cap: $0.4bn; Liquidity: $1mn)

Hoosier announced a plan to conduct a buyback of 21,637,500 of its own shares (37.6% of shares out) in a tender offer at ¥684/share, with the intention to cancel ~95% of the shares it buys back. This is big news. Not coincidentally, this is quite similar to the size of the position held by entities controlled by activist Yoshiaki Murakami, which was 21,570,200 shares as of most recently according to the announcement.

  • This company is not big, and there is only one analyst covering it. Travis does not expect more analyst coverage near-term. He does not expect foreigners to hold a lot of this. The fact that Murakami-san is getting out of this this way rather than via ToSTNeT-3 transaction for part of it seems tax-related. He asked, they said yes. If he thought there were another 50% in this based on this news, he might keep it and figure something else out.
  • This is NOT a buy-the-pop situation. There may be considerable overhang, and if new buyers take the stock higher and then then buy from the old owners, it is not clear to Travis who will buy from the new buyers when they decide to sell. This is probably too small a marketcap for most foreign investors to care unless they are truly specialized in what they do, and growing, and Hoosiers is not as special as all that.

(link to Travis' insight: Hoosiers (3284) Tender Offer Buyback To Buy Out Activist Murakami)

New Century REIT (1275 HK) (Mkt Cap: $0.3bn; Liquidity: <$1mn)

NCREIT - the owner/operator of five-star hotels in China - has announced the sale of its operations to key shareholders, and the subsequent liquidation and winding up of the company. A payment by way of an interim distribution of $2/share, a 14.3% to last close, is proposed. The entire proposal is reminiscent of a Scheme, requiring ≥ 75% of independent unitholders voting for the resolutions, and ≤ 10% of independent unitholders against.

  • The distribution is a 2.5% premium to the NAV as at 30 June 2020. However, a RMB499mn impairment charge was booked to the fair value of NCREIT's investment property in the 1H20. The $2/share distribution is a 22% discount to the NAV as at 31 December 2019.
  • A circular, with an IFA report and a property valuation report, is expected to be issued by the 17 February, with an EGM around 2-3 weeks afterward, by my estimate. Potentially, payment could occur mid-late March. This looks done.

(link to my insight: New Century (1275 HK): Closing Down Sale)

On Friday 29 January 2021 after the close, Japanese textiles and materials giant Teijin Ltd (3401 JP) announced a Tender Offer to buy 65% of the shares outstanding of Japan Tissue Engineering Co (7774 JP) (colloquially known as J-TEC). Current parent company FUJIFILM Holdings (4901 JP) has agreed to tender their 50.1% stake. The two sides went through the motions of finding a "fair price" for DCF purposes but effectively, that was to frame the agreed-upon transaction price between Teijin and FUJIFILM. This sets up an interesting trade on the front end, and mechanically higher than minimum pro-ration. As discussed by Travis in Teijin Partial TOB For Japan Tissue Engineering (7774), if you like the prospects for this business, there is a possibility this creates an interesting set-up.

The Scheme Document is now out for Tonly Electronics Holdings (1249 HK). The Court Meeting/EGM is scheduled for the 23 February, and assuming the Scheme is approved by shareholders, payment under the Offer will be made on or before the 15 March. The IFA (Somerley) considers the Offer to be fair and reasonable. Although the headline premium to last close appears okay, TEH spiked 55% on the 13 August, on decent volume, to close coincidentally at $12/share. In Tonly Electronics (1249 HK): Scheme Doc Out. IFA Says Fair, I said this deal looks done.

The Scheme Document is out for Huifu Payment Limited (1806 HK). The Court Meeting/EGM is scheduled for the 19 February, and assuming the Scheme is approved by shareholders, payment under the Offer will be made on or before the 8 April. The IFA (Somerley) considers the Offer to be fair and reasonable. In Huifu Payment (1806 HK): Scheme Doc Out. IFA Says Fair, I reckoned this deal looks done.

STUBS

I estimate CEG, at the time of my insight, was trading at a discount to NAV of 69% against a one year average of 54%. The long-term implied stub - stripping out just the holding in EA - is the lowest since May 2017. This dislocation was further compounded earlier this week after EA's shares gained 67% after announcing the issuance of 952.383mn shares (9.75% of the enlarged shares) at HK$27.30/share, raising a total of ~HK$26bn. This increased EA's market cap to ~HK$400bn (~US$51bn), 80% more than CEG. For perspective, the market caps for Honda Motor (7267 JP) and Ford Motor Co (F US) are US$47bn and US$45bn respectively. Another 50% gain and EA would overtake Daimler AG (DAI GR)'s US$74.5bn market cap.

  • EA has not yet commenced commercial sales of its vehicles, hamstrung by production delays and an investigation into the EV business by Beijing. EA still targets the production of 5mn cars in 2035. But the company is late to the EV game. There are numerous competitors, most of which are at more advanced levels of production
  • Critically, EA's largest cash outflow in 2019 was for property development (stated value of RMB29.3bn, up from RMB11.2bn) - see page 48 of the 2019 annual report. Similarly, the largest change in the first six months of 2020 was also for property development (RMB46.2bn up from RMB29.3bn) - see page 21 of the 2020 interim report.
  • In addition, EA had borrowings of ~RMB75bn, the vast majority of which is owed or guaranteed to its parent, suggesting the placement proceeds could (will) be recycled up to the parent to retire debt. CEG looks "cheap" and EA frothy, suggesting a set-up here. Personally, I would avoid both.

MERGERS BY ABSORPTION

I've analysed 14 Merger by Absorption deals over the last 16 years. These unique privatisation Offers address the peculiarities of acquiring PRC-incorporated companies listed in Hong Kong. There are no rights under the laws of the PRC and the Articles of Association of a PRC-incorporated company to compulsorily acquire its H Shares that are not tendered for acceptance pursuant to any H Share Offer. The only mechanism available to fully privatise is via a Merger by Absorption, incorporating a Scheme-like vote (≥ 75% for, ≤10% against). A tendering condition of 90% may also be present. This insight - Quiddity M&A : A Guide To Mergers By Absorption - provides a comprehensive guide to those 14 mergers.

INDEX REBALS

FTSE China 50 Index Rebalance. It has been a very busy month for the managers of the IShares China Large-Cap (FXI US) with a raft of changes that resulted in 3 inclusions to/exclusions from the index early in January. There is one more change to be made this month with CNOOC Ltd (883 HK) being deleted and replaced with China Merchants Securities Co Ltd (H) (6099 HK) after the close of trading on 26 January. Then there could be the Fast Entry of Beijing Kuaishou Technology Co Ltd (1496219D CH) that may happen mid-February. That will not be the end of it though, with another ad hoc change expected in late Feb/ early March where Xiaomi Corp (1810 HK) will be deleted and replaced with Shenzhou Intl Group Holdings (2313 HK).

Links to:
Brian's insight: FTSE China 50 Index Rebalance: Permutations and Combinations
Travis' insight: CNOOC (883 HK) Index Deletions - Watch the Patterns

The HKEX (388 HK) and the Shanghai Stock Exchange have announced the inclusion of STAR Board stocks as a part of the Northbound Stock Connect program with effect from 1 February. The twelve stocks will be added to the program are Advanced Micro-Fabrication Equipment-A (688012 CH), Raytron Technology Co Ltd (688002 CH), Zhejiang Hangke Technology-A (688006 CH), Montage Technology Co Ltd (688008 CH), Anji Microelectronics Tech-A (688019 CH), Western Superconducting Te-A (688122 CH), Qingdao Haier Biomedical C-A (688139 CH), China Railway Signal & Com-A (688009 CH), Shanghai Junshi Bioscience (688180 CH), Cansino Biologics (688185 CH), Shanghai Haohai Biological-A (688366 CH) and Shanghai Fudan-Zhangjiang Bio-Pharmaceutical (688505 CH). Inclusion in the Stock Connect program will make these stocks eligible for inclusion in the MSCI Standard index, the FTSE All-World and FTSE All-Cap indices. Link to Brian's insight: STAR Board Goes Into Stock Connect: MSCI, FTSE Index Inclusion Is Next.

LQ45 Index Rebalance. The IDX has announced the changes to the LQ45 Index as a part of the February review. Medco Energi (MEDC IJ) and Chandra Asri Petrochemical (TPIA IJ) have been added to the index, while PT Surya Citra Media Tbk (SCMA IJ) and Sri Rejeki Isman (SRIL IJ) have been deleted from the index. Link to Brian's insight: LQ45 Index Rebalance: TPIA, MEDC In; SCMA, SRIL Out.

Following the merger of equals between Northern Star Resources (NST AU) and Saracen Mineral Holdings (SAR AU), Saracen's last trading day will be 3 February. The various index providers will all delete SAR at the close of trading on 3 February and increase the number of shares and investability weight for NST. This will result in passive selling on SAR and passive buying on NST. SAR's deletion from the S&P/ASX 200 (AS51 INDEX) will create a vacancy that will be filled by PointsBet Holdings Pty Ltd (PBH AU). Link to Brian's insight: Saracen/Northern Star Merger: Index Flow.

SHARE CLASS

The coronavirus is rampaging across Japan again, and the Japanese government is considering extending the state of emergency declared in and around the Tokyo area until the end of February. The Suga administration is also considering declaring a state of emergency in other parts of the country that are continuing to see a high number of coronavirus cases. As a result, holding the Tokyo Olympics as planned in July 2021 is becoming increasingly unlikely. Asahi Group Holdings (2502 JP), a Gold Partner in the Tokyo Olympics and the sole sponsor in the Beer & Wine category at the Tokyo Olympics, is expected to lose the most compared to Japanese beer companies like Kirin Holdings (2503 JP) and Sapporo Holdings (2501 JP) if the Olympics is held behind closed doors or relocated. In Long Kirin/​Short Asahi While Tokyo Olympics Hangs In Doubt, Oshadhi Kumarasiri recommends a Long Kirin and Short Asahi trade.

M&A - JANUARY 2021 ROUND-UP

For the month of January, 22 new deals were discussed on Smartkarma with an overall announced deal size of ~US$52bn. The average premium for the new deals announced (or first discussed) in January was ~35%. This compared to the average premium in 2020 and 2019 of 31% and 31.5% respectively.

(link to my insight: (Mostly) Asia M&A: January 2021 Roundup)

M&A - EUROPE

With KAZ Minerals (KAZ LN) trading (at the time of Jesus Rodriguez Aguilar's insight KAZ Minerals) 19.5% higher than the offer, shareholders will not tender. Jesus is long.

On 23 January, Globalwafers (6488 TT) announced that the offer price for Siltronic AG (WAF GR) has been increased to €145. The minimum acceptance threshold has been lowered to 50%. The acceptance period has been extended to 10 February. This is done. Play the spread. Link to Jesus's insight: GlobalWafers Ups Offer for Siltronic.

Australian fund IFM Global Infrastructure has launched an unexpected partial hostile takeover offer for 22.69% of Naturgy Energy Group SA (NTGY SM), at €23/share, a premium of ~20% to last close. In IFM Investors to Launch a Partial Hostile Tender Offer for Naturgy, Jesus is long.

On 27 January, Savaria Corp (SIS CN) made an offer to acquire Handicare Group AB (HANDI SS) for SEK 50 per share. The largest shareholder, Cidron Liberty Systems S.à r.l. (Nordic Capital), with a 62.9% stake, has informed Savaria that it intends to accept the offer. Savaria needs acceptances from 72.25% of the float. In Handicare - Savaria: Recommended Offer, Jesus is long.

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

UTS (6113 HK)14.63%PhililipCiti
Simno Vision Holdings (8086 HK) 18.34%BOCIChina Tonghai
MOS (1653 HK)25.00%HSBCOutside CCASS
Perennial (2798 HK)22.50%China SecOutside CCASS
C&N Holdings Ltd (8430 HK) 20.00%OpusEasy
Furniweb (8480 HK) 45.90%Kim EngI Win
Universe Intl Hldgs (1046 HK) 22.15%SilverbricksSHK
Takbo (8436 HK)15.00%UBSOutside CCASS
Source: HKEx

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

Name

% chg

Into

Out of

Simcere Pharmaceutical Group (2096 HK) 10.11%CCBOutside CCASS
Source: HKEx
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