Prosus/​Naspers - The ουροβóρος Is Dead! Long Live The Ouroboros!

Once upon a time there was a South African Media Company which invested US$32mm (some say US$34mm) to own a 46.5% stake in a small Chinese company it hoped would grow. The small Chinese company, named Tencent, subsequently grew.

A Lot.

Now it's big.

I have a different opinion about Bank of Kyoto.

There are two parts to BoK
1) It has regional bank operations.
2) It has a giant equity portfolio on which it has unrealised gains (it also has deferred tax liabilities on its balance sheet which reduce those gains).

https://twitter.com/TeddyOkuyama/status/1677295347348152321

A brief thread is below.

In the meantime, know that the “¥16bn of cross holdings” they mean to sell in three years (and pay half the profits to shareholders) is the original investment value of 10% of their portfolio. In a straight line, it means they

https://t.co/cM8hUwyi6U

https://twitter.com/travislundyasia/status/1652643797556400129?s=46

https://twitter.com/travislundyasia/status/1652643797556400129

Adani Enterprises (#ADANIENT) and Adani Group

I published an update on @smartkarma for subs (link at the end). And I have some Ugly Charts. And an Ugly Table

Oaktree seizes Evergrande land plot in Hong Kong.

A lot of people will be making noise about this "breaking" the restructuring plan. This is not a surprise at all, and doesn't break the restructuring plan.

Everyone who has security over an asset

ft.com/content/5d82c8… will take everything they can so as to not lose out against those who do not have security.

This is the crucial "problem" with what is public debt - whether it be USD bonds of EVERRE, the onshore bonds of Hengda, or the WMPs.

A real estate developer has lots of projects and

There are a lot of headlines coming out - fast and furious - about SOEs buying development projects from troubled real estate developers.

There is a proposal that the Three Red Lines would not apply to such purchases (for the purchaser) allowing lenders to upgrade their credit exposure from "bad developer" to "SOE developer", which theoretically would be a good thing.

There is another proposal which would create a nationwide policy/metric or allowing developers to take cash out of escrow accounts, which would improve cashflow. That only works to the

Bank of Kyoto (8369 JP), perennial "value play" and "deeply discounted stub trade" saw shares rise 7.7% today. Bounced to a new 6mo high.

The reason? They raised the target payout ratio from 30% to 50%. Bank of Kyoto famously has a very large cross-holding portfolio, with the top 90 listed names broken down in the chart below.

The portfolio has outperformed TOPIX in recent years - which is good.

For those who track Evergrande, there is a lot one can do to read between the lines in this article about Zou Lan's (director general of the Financial Market Department of the PBOC) presser.

bloomberg.com/news/articles/… "risks to the financial system stemming from the developer’s struggles are “controllable” and unlikely to spread."

The central bank has asked lenders to keep credit to the real estate sector “stable and orderly.”

I just finished listening to the always excellent Odd Lots podcast with @tracyalloway and @TheStalwart - this time about the macroeconomic implications of the Evergrande situation with @michaelxpettis.

A great listen. Worth your time.

https://twitter.com/tracyalloway/status/1447476656214462465?s=20

Professor Pettis lays it out quite cleanly, noting (in an opinion I agree with) that Evergrande did not start the fire, and that the overarching policy aims meant this was going to happen at some point. Evergrande is the poster-child because of its presence in USD debt markets

On Evergrande $3333.HK, I remain surprised we haven’t seen more commentary today about the Jumbo Fortune bond which matured 3 Oct.

It’s a privately-issued USD bond with guarantee by Evergrande, apparently. I say ‘apparently’ because the prospectus is not public.

The stories out a couple weeks ago suggested there was no grace period (though it matured on a Sunday so wouldn’t pay til Monday) but the bondholders would extend a 5-day grace period.

That 5-day grace period ends today (assuming HK calendar).

Reuters: SOE developers and local govts asked to step in to buy Evergrande assets.

This has been my central theorem for a "market-oriented approach" solution.

Avoid direct state intervention. Get state govts to supply slightly senior/pref equity.

reuters.com/world/china/ch… Get quasi-private sector involved to manage project completion with effective credit enhancement to projects. Get some cash into projects to complete them, possibly to push some equity back to Hengda.

Allow Hengda to wind itself down slowly through debt repayment.

A short follow-up on Evergrande ($3333 HK)

Thanks to all for listening to the podcast with @TheStalwart and @tracyalloway.

First, some housekeeping:

The podcast is here (or on Apple podcasts, or Spotify): bloomberg.com/news/articles/…

The transcript here: bloomberg.com/news/articles/… Since we recorded that, there have been any number of news stories and developments covered in the SCMP, the FT, WSJ, NYT, and more. They have been informed and relevant.

There have been a few threads by @michaelxpettis and commentary by @niubi well worth reading.

Year-End Comments from An Independent Analyst (Thread)

1) Buy side does not make sufficient use of external expertise.

I publish research on events, special sits, catalyst-driven situations (which will include fundamentals) on @smartkarma and I note lots of HFs and LOs (2/n) which do "fundamental" (whether "growth" or "value" biased) ignore the alpha available from special sits. They may not "do risk arb" but when a situation shows up on a portfolio name, they should understand how to best exit/play. They tend to think proprietary info about

Looking Inside the Diaper.

On 30 May 2019, I wrote about Sanyo Chemical (4471 JP) and Nippon Shokubai (4114 JP) as a Guess-The-Ratio trade. I liked both companies, but one wanted to buy Sanyo Chem cheap (1/n)

smartkarma.com/insights/sanyo… (2/n) I recommended trading the range, buying the 4471/4114 ratio at 0.75 and possibly shorting it at 0.95.

The Nikkei 225 is a weird and whacky index.

Locally it is sometimes referred to as the "Nikkei Dow" because it is price-weighted, like the Dow Jones Industrial Average.

Started many decades ago, the index was started by taking 225 stocks, adding up all the prices, and then dividing by a DIVISOR to get to the index level on Day 1.

A stock's weight was price divided by the sum.

When one stock is taken out and replaced with another, you change the divisor on that day to make it the same as it would have been had the stock going out remained in.

Another one really nicely called by Janaghan Jeyakumar @smartkarma. He called for investors to buy Gremz (3150 JP) at ¥1609 or better due to the tachiaigai bunbai event in third week of September. That was <¥1600.

smartkarma.com/insights/topix… Stock closed today at ¥2161 - 35% higher.

And today we get the TOPIX inclusion announcement. That's 1.4mm shares to buy end-December