Capitalising from Asian corporate events


by Carolyn Herbert

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Transcription of Finance News Network Interview with Pengana Absolute Return Asia Pacific Fund Senior Fund Manager, Antonio Meroni
John Treadgold: Hello I’m John Treadgold for the Finance News Network and joining me from the Pengana Absolute Return Asia Pacific Fund, is its Senior Fund Manager, Antonio Meroni. Antonio welcome back to FNN.
Antonio Meroni: Thank you so much, it’s a pleasure being here.
John Treadgold: The Fund is focused on investment opportunities in Asia Pacific companies undergoing corporate events. Where do you see the key opportunities?
Antonio Meroni: In fact we see them right now in Japan. 2014 has seen a record number of share buyback announcements and also dividend increases to minority shareholders. Just in 2014 alone, the pickup was 93 per cent increase in share buybacks, which totalled around $US47 billion. In addition to that, just for the second half of 2014, that increase has seen that dramatic increase of around 76 per cent. So a significant pick up in share buybacks activity.
John Treadgold: Are you seeing any structural changes in Asia that are creating investment opportunities for the Fund?
Antonio Meroni: If I switch over to China, the opening up of the capital market right now is a big thing. As you may know, there is the northbound and southbound direct market access. What that means is that northbound investors for the first time ever, can buy Asia listed companies. Likewise southbound investment means Mainland Chinese can buy Asia listed companies. And also in addition to that, H-share listed companies trade - some of them trade at significant discount through its Asia listing. Therefore, creating opportunity for us to capture.
John Treadgold: How has the Fund performed over the past three to 12 months, and what were some of the best performing trades for the last quarter?
Antonio Meroni: The Fund has returned over the last three months, just shy of three per cent, i.e. 2.5 per cent. And since calendar year 2014, the Fund is up nearly six per cent and we are hopeful to get to our 10 per cent target, by Financial Year 2015. During the time period, our best winning trade on a risk-adjusted basis, was a company called JobStreet Malaysia. As you may know Seek Limited (ASX:SEK) which is listed here in Australia, offered to acquire shares for the online business at Malaysian Ringgit 2.38 (MYR2.38).
During the course of the deal since it was announced, the deal has experienced a deal bump to MYR2.65. So we’ve seen an increase in consideration for the online employment business. However, many many market participants didn’t realise the hidden gem, which was the unlisted stock business because post completion, we had MYR10 cents valuation attached to that. Post completion of the deal, the stock asset or the backend, rerated from 10 cents to almost 50 cents which allowed us for the Fund, from initiation of the trade to exit of the trade, to capture an almost 20 per cent return just for that trade alone.
John Treadgold: Which positions have you added to the portfolio recently and why?
Antonio Meroni: The new addition to the book is a merger arbitrage position in a company called PanAust Limited (AUS:PNA). As you may know Quangdong Rising Asset Management or GRAM came back with a hostile takeout bid, an unconditional offer at $1.71 with a view to delist the company, because they want to get up to 90 per cent of minorities.
John Treadgold: The Fund as I understand it, has historically generated around 60 per cent of its return from M&A activity. Is that still the case, or are there other corporate events that you’ve been active in recently?
Antonio Meroni: That is still the case. So we love M&A, because of the best risk adjustment return feature that this strategy offers. However, the Fund remains pretty well diversified.
John Treadgold: As several conglomerates reorganise themselves in the name of unlocking shareholder value, were you involved in the proposed merger of Cheung Kong Holdings (OTCMKTS:CHEUY) and Hutchison Whampoa Limited (OTCMKTS:HUWHY)?
Antonio Meroni: The answer is yes. As you may know in Hong Kong, there is a lot of parent subsidiaries listed companies and one of them was Cheung Kong (Holdings) Limited and Hutchison. Cheung Kong previously held a 49.97 per cent stake in Hutchison, therefore, creating a holding discount. That discount averaged around 25 to 30 per cent historically.
Now the proposed restructuring and acquisition of Hutchison by Cheung Kong, will eliminate that holding company discount - Point A, and Point two, it will offer more dividends to minority shareholders.So the restructuring, if you like, of Cheung Kong and Hutchison will be that a merger – Point one and Point two, a spinout of the property business into Cheung Kong Property and that unlocks shareholder value.
John Treadgold: Antonio Meroni, thank you very much for the update from the Pengana Absolute Return Asia Pacific Fund.
Antonio Meroni: Thank you.