Hovid Bhd: Potential coattail gains? (2)

Hovid Bhd major shareholders, holding close to 80% of stake in Hovid Bhd, had launched a corporate action seeking to delist Hovid Bhd with a similar exit offer of RM0.38 per share compared to its 1^st attempt at taking the company private.

EGM vote outcome due back in 15 November 2018 shows the final verdict being Hovid taken private, thus closing the potential coattail gains deal as highlight by yours truly back in June 2018.

Note: This is not an investment advice. Buy and sell any securities at your own risk.

Disclosure: None.

Hwang Capital: Potential bumper dividend round 2? (2)

Recall in an earlier posting that yours truly has speculated on the possible bumper dividends for the 2^nd time coming from Hwang.

In a surprise turn of events, Hwang had announced on Bursa Malaysia that its major shareholders, holding about 30% of total shares outstanding in Hwang Capital intend to launch a conditional takeover offer for the remaining 70% shares outstanding for Hwang Capital at RM2.65 per share, a decent premium of about 16% from current share price of RM2.21.

The share price had a brief run up in late March, almost breaching the RM2.65 levels before share price took a dive following an announcement that it will be extending timeframe for acquisition of new business for another year to April 2017.

Shareholder wishing to sell back their shares to Hwang at RM2.65 can do so should Hwang able to control more than 50% of voting shares after tabulating all valid acceptances to the offer.

A quick check on the shareholder register showed another substantial shareholder, DBS bank, which is in turn controlled by Temasek, Singapore’s sovereign wealth fund, with the potential in becoming the kingmaker in this deal. Its stake at a price of RM2.65 is valued at approximately SGD61 million, chump change compared to its huge asset base. The author is of the view that likelihood of DBS selling away the stake is high, thus paving way for an eventual delisting, which is incidentally the major shareholder’s desired intention.

Minority resistance may surface due its substantial discount of 21% compared to its NTA of RM3.22 per share. However, low interest rate environment and a continued delay may force shareholders to sell in view of the dimming prospects for its only core moneylending business.

Ultra patient shareholders may finally see light at the end of tunnel after holding on to Hwang shares. Since the bumper dividend on April 2014, share price has been on a steady uptrend from a low of RM1.80, and shareholders may have the chance to dispose its shares for a total of 47% capital gains after 2 and a half years.

Share price movement post announcement of the deal when the stock begins trading may present further opportunities for risk arbitrage.

Final thoughts:

Pros: Opportunity for unlocking share value for shareholders, higher offer price

Cons: Failure to obtain requisite valid acceptances pass conditions precedent.

Note: This is not an investment advice. Buy and sell any securities at your own risk.

Disclosure: None.

KAF Seagroatt-Campbell: Risk Arbitrage or reverse risk arbitrage? (2)

Recall earlier posting that there is a potential risk arbitrage gains about 7.5% should you purchase KAF shares on 22 February 2016. The offer has officially become unconditional and the offeror had proceeded to scoop up the remaining shares in KAF. KAF IB will have full control of KAF Seagroatt-Campbell. This deal will be finalized by June 2016 and will close a chapter on the takeover deal. The price has shot up to RM2.69 per share and those holding on to the shares can sell them back at RM2.70 for some savings on brokerage expenses. No further opportunities are expected from this share.

Note: This is not an investment advice. Buy and sell any securities at your own risk.

 

KAF Seagroatt-Campbell: Risk Arbitrage or Reverse Risk Arbitrage?

KAF Seagroatt & Campbell Bhd (KAF) (Stock Code 5096) listed on Bursa Malaysia has an impending corporate action where 76.74% of the listed entity shares will be acquired by KAF Investment Bank Berhad (KAF IB). Upon completion of the share sale agreement with KAF IB fully owning 76.74% of KAF shares, a mandatory general offer (MGO) will be triggered which gives other KAF shareholders an option to sell back your shares to KAF IB at a price of RM2.70 per share.

Based on the current ask price of RM2.51 per share (where shares can be bought immediately from a willing seller/sellers), there is a potential risk arbitrage gains of 7.5% in less than a year. However, this is subject to share sale conditions being fulfilled which will result in KAF IB gaining ownership of 76.74% equity interest in KAF.

As at 22 February 2016, the share sale conditions have not been fulfilled, after several announcement to extend the period of fulfillment of the conditions, hence delaying the trigger of MGO. On 22 Feb 2016 itself, a 3^rd announcement was made to Bursa that the period for fulfillment will be extended for another 3 months (90 days). The discount between the share price and MGO offer price has also widened since the announcement of the offer, hence giving market onlookers looking for risk arbitrage a chance of profit should they be confident in their assessment of the conditions successfully fulfilled and paving way for an MGO.

The final hurdles (share sale conditions) going against the deal may be the regulator’s stamp of approval, namely Bank Negara approval for KAFIB to purchase a securities broker KAF and Securities Commission approval on any change in shareholdings in the listed entity KAF. Should these 2 conditions fail to pass, there may be temporary roadblock to the MGO.

Final thoughts:

Pros: Potential attractive risk arbitrage returns of 7.5% in less than a year.

Cons: Continued delay in fulfillment of share sale conditions, lockup of excess cash in this risk arbitrage deal, total cancellation of share sale agreement and MGO, resulting in share price plunge below current levels.

Note: This is not an investment advice. Buy and sell any securities at your own risk.

Disclosure: None.

Side note: The continued delay highlights one of the key risks for those looking to profit through risk arbitrages deals involving listed securities. Excess cash may be lock up for longer than expected periods, or you may be forced to cut loss for a better investment opportunity. For those looking to spice up their returns using share margin financing, your interest cost on borrowed funds will be ticking up as the days and months goes by, hence reducing the profit margins.