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

QuickNote: CITIC Secs to sell NSSF H-shares at HUGE discount - Strategic? Hmmm....

Thematic (Sector/Industry)

Hong kong Financials / Thematic (Sector/Industry)

While not unexpected, the train chugs on....China brokers continue to issue equity, and launch IPOs.After GF Securities (1776 HK) launched a US$4bn H-share IPO in April which was up 30+% on Day1, China Galaxy Securities did a HK$24bn (US$3.1bn) top-up on its H-shares in early May (now up 10% since then), and Huatai/HTSC launched a HK$40bn (US$5.15bn) offering (including greenshoe) as its As climbed even higher, CITIC Securities received approval Friday from the CSRC to issue up to 1.5bn new H-shares (going along with the announcement dated 28 Dec 2014, the Circular dated 14 Jan 2015, and the A-share EGM 16 February 2015). That's $6.25bn if placed at a 5% discount to Friday's close. This announcement does not necessarily mean an offering is imminent - CITIC would still need permission from the HKEx - but it clears the way for a mega offering. CONCLUSIONS<ul><li>This would be a BIG offering at US$6bn.</li><li>This adds to the overhang of China broker issuance. There has been a fair bit year-to-date, and there is a fair bit more to come.</li><li>As described in the <a href="http://www.smartkarma.com/insights/huatai-securities-equity-raise-if-you-are-bullish-volumes-it-s-cheaper-than-it-looks" target="_blank">piece on Huatai Offering math</a>, broker issuance at a discount to As when ROEs are lofty means forward PERs are low. And those at the "front of the queue" in terms of issuance will have pro-forma issuance PBRs lower than peers.</li><li>Brokers are still subject to the model of Comms x Market Valuation x Market Turnover x Total Leverage x The Dream. If you think those components are sustainable over the medium-term (especially expectations ("the Dream")), this deal would put CITIC H-shares at 2.1-2.3x book (vs 2.9x now) and something like 13x 2016 forecast earnings (assuming 10% ROE on the incremental capital raised) vs China Galaxy at 2.9x and 15.6x FY2016 PER and Haitong H-shares at 2.7x 2014 PBR and 13.5x consensus 2016 PER.</li><li>Math is presented for a possible Offering.</li><li>THERE IS NO PROMISE OF AN OFFERING TO MADE ISSUED BY THE COMPANY, BY MYSELF, NOR ANYONE ELSE TO MY KNOWLEDGE. I am simply extrapolating from current market expectations, announcements, and other brokers' behavior in recent issuance.</li></ul>

While not unexpected, the train chugs on....China brokers continue to issue equity, and launch IPOs.After GF Securities (1776 HK) launched a US$4bn H-share IPO in April which was up 30+% on Day1, China Galaxy Securities did a HK$24bn (US$3.1bn) top-up on its H-shares in early May (now up 10% since then), and Huatai/HTSC launched a HK$40bn (US$5.15bn) offering (including greenshoe) as its As climbed even higher, CITIC Securities received approval Friday from the CSRC to issue up to 1.5bn new H-shares (going along with the announcement dated 28 Dec 2014, the Circular dated 14 Jan 2015, and the A-share EGM 16 February 2015). That's $6.25bn if placed at a 5% discount to Friday's close. This announcement does not necessarily mean an offering is imminent - CITIC would still need permission from the HKEx - but it clears the way for a mega offering. CONCLUSIONSThis would be a BIG offering at US$6bn.This adds to the overhang of China broker issuance. There has been a fair bit year-to-date, and there is a fair bit more to come.As described in the piece on Huatai Offering math, broker issuance at a discount to As when ROEs are lofty means forward PERs are low. And those at the "front of the queue" in terms of issuance will have pro-forma issuance PBRs lower than peers.Brokers are still subject to the model of Comms x Market Valuation x Market Turnover x Total Leverage x The Dream. If you think those components are sustainable over the medium-term (especially expectations ("the Dream")), this deal would put CITIC H-shares at 2.1-2.3x book (vs 2.9x now) and something like 13x 2016 forecast earnings (assuming 10% ROE on the incremental capital raised) vs China Galaxy at 2.9x and 15.6x FY2016 PER and Haitong H-shares at 2.7x 2014 PBR and 13.5x consensus 2016 PER.Math is presented for a possible Offering.THERE IS NO PROMISE OF AN OFFERING TO MADE ISSUED BY THE COMPANY, BY MYSELF, NOR ANYONE ELSE TO MY KNOWLEDGE. I am simply extrapolating from current market expectations, announcements, and other brokers' behavior in recent issuance. 

Greaterchina Professional Services (8193 HK)

Southwest Securities Intl Securities (812 HK)

Orient Securities Intl Holdings (8001 HK)

China Financial International Investment (721 HK)

China Ding Yi Feng Holdings Limited (612 HK)

Freeman FinTech Corporation Limited (279 HK)

China Merchants China Direct Investments (133 HK)

China Medical & HealthCare Group Limited (383 HK)

China Smarter Energy Group Holdings (1004 HK)

China Development Bank Intrntnl Invstmnt (1062 HK)

Cosmopolitan International Holdings Limited (120 HK)

Cosmopolitan International Holdings Limited

Oi Wah Pawnshop Credit Holdings (1319 HK)

Haitong International Securities Group (665 HK)

China Development Bank Financial Leasing (1606 HK)

QUICK NOTE: China Brokers Share Issuance: CITIC Secs gets CSRC OK to issue US$6bn