Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

HK Type 4 license through Ballingal Investment Advisors Ltd. ("BIA" or "BIAL")

BACKGROUND
I have 20+yrs experience in Asia doing alternative strategies (i.e. non-delta1 non long-only) in fixed income, equity derivatives, and activist/catalyst/event-driven and long-short equity strategies with most of that time spent managing money. 

4 years in fixed income macro, 8 years running internal hedge fund and 4yrs investment banking at Citi in Japan, 3 years running an Asia multi-strat portfolio at a hedge fund, 4+yrs as an independent special situations analyst.

Pan-Asia Catalysts/Events

Naspers/Prosus Initial Index Changes Done, Now To Reverse the Trade

Prosus EGM Approves Partial Offer for Naspers - Next Steps Interesting, Part I

Naspers-Prosus - Estimating Pro-Ration and Analysing Index Events

Battle Lines Drawn As BABA Builds Out First/Last-Mile Capacity; But Who Will Fund 75+ Bn CNY CapEx?

Quiddity Advisors

Event-Driven

The <a href="https://www.smartkarma.com/entities/prosus-nv" target="_blank" data-smartkarma-citation="entities:28104:1" rel="noopener">Prosus (PRX NA)</a> Exchange Offer to buy 45.33% of <a href="https://www.smartkarma.com/entities/naspers-ltd" target="_blank" data-smartkarma-citation="entities:21085:1" rel="noopener">Naspers (NPN SJ)</a> closed Friday at noon Johannesburg time and just 2 hours later, we had the result (would that other offers around the world would be so quick to announce. 
It has been a nerve-wracking couple of days for arbitrageurs, perhaps upset that the spread trading ex-event has had the sheer audacity to trade as wide as was implied in the days before it went ex- by the minimum pro-ration and the borrow market. At 5% before and prevailing borrow rates at the time, shorting and getting done on 47.6% of the borrow meant the breakeven between buying at 5% beforehand and buying to cover ex- was at 9.5% to terms.
The event is now done, and this morning pre-open there is <a href="https://www.prosus.com/news/the-implementation-of-the-capital-restructure-and-the-results-of-the-exchange-offer/" target="_blank" rel="noopener">more detail</a> with pro-ration coming in at 64% for those who participated on an uncapped basis. 
I had the wider range at 54-64% as discussed in my last few insights (but that range was pretty much that from the start) with a narrower range tilted towards the lower end.
The fact that it came in at 64% overall (the numbers are a bit weird) tells us something. It tells us quite a bit in fact.  Helpfully, many of the major index providers also announced on Friday night which means there is potentially a LOT of paper to move on Tuesday afternoon. 
Today, the first day of trading of the new shares, both Naspers and Prosus are trading much more liquidly AND surprisingly, the spread is reasonably stable, caught just now at 666bp to terms.
<section class="figure">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/223/947/original/Screenshot+2021-08-16+at+6.00.51+PM.png?1629108107" class="editor-image img-responsive" data-smartkarma-image-id="223947"></figure>
</section>
This is trading narrower than I would have expected by a couple of percent which suggests to me that index investors participated, and some arbs simply borrowed and shorted Naspers to get the result here, going from no economics to a long Prosus short Naspers position, and long-only active investors may be unwinding into that cover demand. 
But because this involves a lot of data and details, there is a lot more below the fold.

The Prosus (PRX NA) Exchange Offer to buy 45.33% of Naspers (NPN SJ) closed Friday at noon Johannesburg time and just 2 hours later, we had the result (would that other offers around the world would be so quick to announce. 
It has been a nerve-wracking couple of days for arbitrageurs, perhaps upset that the spread trading ex-event has had the sheer audacity to trade as wide as was implied in the days before it went ex- by the minimum pro-ration and the borrow market. At 5% before and prevailing borrow rates at the time, shorting and getting done on 47.6% of the borrow meant the breakeven between buying at 5% beforehand and buying to cover ex- was at 9.5% to terms.
The event is now done, and this morning pre-open there is more detail with pro-ration coming in at 64% for those who participated on an uncapped basis. 
I had the wider range at 54-64% as discussed in my last few insights (but that range was pretty much that from the start) with a narrower range tilted towards the lower end.
The fact that it came in at 64% overall (the numbers are a bit weird) tells us something. It tells us quite a bit in fact.   Helpfully, many of the major index providers also announced on Friday night which means there is potentially a LOT of paper to move on Tuesday afternoon. 
Today, the first day of trading of the new shares, both Naspers and Prosus are trading much more liquidly AND surprisingly, the spread is reasonably stable, caught just now at 666bp to terms.



This is trading narrower than I would have expected by a couple of percent which suggests to me that index investors participated, and some arbs simply borrowed and shorted Naspers to get the result here, going from no economics to a long Prosus short Naspers position, and long-only active investors may be unwinding into that cover demand. 
But because this involves a lot of data and details, there is a lot more below the fold.

Naspers Deal Done - Flex Participation and Pro-Ration, Misunderstandings, and INDEX CHANGES GALORE!