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

Quiddity Advisors

Event-Driven

<p>A year ago, Jens Jenisch, chief executive of <a href="https://www.smartkarma.com/entities/27916" target="_blank" data-smartkarma-citation="entities:27916:1">LafargeHolcim Ltd (LHN SW)</a> announced a five-year restructuring plan after a $4bn write-off caused it to want to take a more focussed look at their business, concentrating their efforts on their biggest markets, which at the time were specifically defined as Europe, the US, Latin America, India and Africa. Just under 70% of the $4bn write-off came from impairments taken in Indonesia, Brazil, Malaysia and the Middle East operations. Jenish said at the time (March 2018) that LafargeHolcim would aim for annual revenue growth of 3-5%, and recurring EBITDA growth of &gt;5%, and increasing ROIC by more than 8%. Since then, the EBITDA growth target has been lowered a bit, but the focus on the 2022 plan is unchanged. </p><p>That meant that a bunch of subsidiaries in Asia - a non-focus area - were likely up for sale. </p><p>One of those was PT Holcim Indonesia which Lafarge agreed to sell to <a href="https://www.smartkarma.com/entities/11161" target="_blank" data-smartkarma-citation="entities:11161:1">Semen Indonesia Persero Tbk (SMGR IJ)</a> last November for $1.75bn. Others include the Philippine business and rumors have been floating around for the Malaysian business since last year, picking up pace in January. On March 7th the shares of <a href="https://www.smartkarma.com/entities/12378" target="_blank" data-smartkarma-citation="entities:12378:1">Lafarge Malaysia (LMC MK)</a> soared 30% in a day and when the exchange asked the company if there were any reason, the company responded:</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/086/635/original/Screenshot%202019-05-02%20at%204.58.59%20PM.png?1556787573" class="editor-image img-responsive" data-smartkarma-image-id="86635"></figure><div class="content-caption">source: company filing at <a href="http://www.bursamalaysia.com/market/listed-companies/company-announcements/6089701" target="_blank">Bursa Malaysia</a>
</div><h2>The New News</h2><p>Today, Lafarge <a href="https://www.lafargeholcim.com/lafargeholcim-divests-activities-malaysia-singapore" target="_blank">announced</a> that it had come to an agreement to sell its 51% stake in Lafarge Malaysia to YTL Cement Berhad and its 91% stake in unlisted Holcim Singapore to YTL Cement Singapore PTE. </p><p>YTL Cement Berhad will purchase 433,344,693 shares of <a href="https://www.smartkarma.com/entities/12378" target="_blank" data-smartkarma-citation="entities:12378:1">Lafarge Malaysia (LMC MK)</a> at RM 3.75/share for a total consideration of RM 1,625,042,598.75 or roughly US$376mm. The Sale &amp; Purchase Agreement has no conditions precedent and is unconditional as of the date of the <a href="http://www.bursamalaysia.com/market/listed-companies/company-announcements/6149085" target="_blank">announcement</a> by Maybank (acting on behalf of YTL). </p><p>This creates a requirement for a Mandatory Tender Offer for the rest of the shares at RM3.75, which is a 13.64% premium to last trade, a 32% premium to 1-month VWAP, and a 47% premium to 3-month VWAP up to the last trading day. </p><p>There appear to be no conditions on the Mandatory Tender Offer. The Offer Document would be despatched by the 21st day from today's announcement and would remain open for at least 21 days after the despatch date. Then, the normal rules would apply. </p><p>This is a changing of the guard at a company which has seen revenue and operating profit decline in local terms in four of the last five years (in 2015 revenue was up 0.3%yoy), with a full RM -365mm of OP in 2018 as cement ASPs fell to a new recent low, coal prices remained high and electricity prices did too. Capex to lower fuel usage and enable use of lower-cost coal may lower costs but there is a rise in electricity tariffs starting March 1 and so the company is forecast to lose money on an operating business in both 2019 and 2020. </p>

A year ago, Jens Jenisch, chief executive of LafargeHolcim Ltd (LHN SW) announced a five-year restructuring plan after a $4bn write-off caused it to want to take a more focussed look at their business, concentrating their efforts on their biggest markets, which at the time were specifically defined as Europe, the US, Latin America, India and Africa. Just under 70% of the $4bn write-off came from impairments taken in Indonesia, Brazil, Malaysia and the Middle East operations. Jenish said at the time (March 2018) that LafargeHolcim would aim for annual revenue growth of 3-5%, and recurring EBITDA growth of &gt;5%, and increasing ROIC by more than 8%. Since then, the EBITDA growth target has been lowered a bit, but the focus on the 2022 plan is unchanged. That meant that a bunch of subsidiaries in Asia - a non-focus area - were likely up for sale. One of those was PT Holcim Indonesia which Lafarge agreed to sell to Semen Indonesia Persero Tbk (SMGR IJ) last November for $1.75bn. Others include the Philippine business and rumors have been floating around for the Malaysian business since last year, picking up pace in January. On March 7th the shares of Lafarge Malaysia (LMC MK) soared 30% in a day and when the exchange asked the company if there were any reason, the company responded:source: company filing at Bursa Malaysia
The New NewsToday, Lafarge announced that it had come to an agreement to sell its 51% stake in Lafarge Malaysia to YTL Cement Berhad and its 91% stake in unlisted Holcim Singapore to YTL Cement Singapore PTE. YTL Cement Berhad will purchase 433,344,693 shares of Lafarge Malaysia (LMC MK) at RM 3.75/share for a total consideration of RM 1,625,042,598.75 or roughly US$376mm. The Sale &amp; Purchase Agreement has no conditions precedent and is unconditional as of the date of the announcement by Maybank (acting on behalf of YTL). This creates a requirement for a Mandatory Tender Offer for the rest of the shares at RM3.75, which is a 13.64% premium to last trade, a 32% premium to 1-month VWAP, and a 47% premium to 3-month VWAP up to the last trading day. There appear to be no conditions on the Mandatory Tender Offer. The Offer Document would be despatched by the 21st day from today's announcement and would remain open for at least 21 days after the despatch date. Then, the normal rules would apply. This is a changing of the guard at a company which has seen revenue and operating profit decline in local terms in four of the last five years (in 2015 revenue was up 0.3%yoy), with a full RM -365mm of OP in 2018 as cement ASPs fell to a new recent low, coal prices remained high and electricity prices did too. Capex to lower fuel usage and enable use of lower-cost coal may lower costs but there is a rise in electricity tariffs starting March 1 and so the company is forecast to lose money on an operating business in both 2019 and 2020. 

Lafarge Malaysia Sold to YTL - Mandatory Offer Ensues