OneConnect (6638 HK/OCFT US): Ping An's Offer Gets The Nod From SAMR

• On the 15th May, dual-listed Oneconnect (6638 HK/OFT US), a digital retail banking/commercial banking/digital insurance play, announced a firm Scheme Offer from Ping An, OneConnect's controlling shareholder.

• Ping An is offering HK$2.068/share, or US$7.98/ADS, a 72.33% premium to last close, and a 131.66% premium to the 30-day average. Net cash is, however, ~HK$1.83/share. The price is final.

• SAMR has now signed off on the deal, satisfying the pre-condition. We await directions from the Cayman court on timing. I'm estimating late-September payment. Should the deal get up.

OneConnect is illiquid - look away now if that is not your thing.

Full disclosure:

In OneConnect Financial (6638 HK/OCFT US): Ping An Firms Offer @ HK$2.068/Share, I stated that SAMR had signed off on the transaction. That information was clearly wrong. Apologies.

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Conclusions First

• Ping An and concert parties hold 75.18%.

• Is the price fair? Optically, yes.

  • Shares are illiquid. The company's ops has been haemorrhaging money.

  • Yes - as at FY224, OneConnect had US$191mn of cash, with a further US$118mn held under financial assets for sale. Borrowings are just US$35mn; so net cash of ~US$275mn versus a current market cap of US$283mn. Therefore, this deal would be self-funding for Ping An.

  • Despite the net cash position, OneConnect doesn't pay dividends.

  • And the market has historically discounted this hoard. Arguably, the Offer is what it is.

• Recent fails. Goldlion Holdings (533 HK) was sitting on net cash of HK$1.051bn (HK$1.08/share, 20% of total assets), compared to the market cap of HK$1.4bn - see Goldlion Holdings (533 HK): 9th May Vote On Tsang Family's Offer. And shareholders shot that Scheme down.
  

  • Then there was Soundwill Holdings (878 HK)'s Scheme (Soundwill Holdings (878 HK): 23rd May Vote On Founder's Offer), in which the $8.50/share Offer, including a $1.00/share dividend, was a 62.84% premium to undisturbed. But a 87.66% discount to NAV. Shareholders also shot that Scheme down.