Korea / Special Sits, Pairs, Index Rebalancing, Clepsydra Capital

Sanghyun Park

Korea / Special Sits, Pairs, Index Rebalancing

Event-Driven

We have another holdco conversion play here in Korea. Hyosung Corporation (004800 KS), which is KOSPI's 60th largest company by market cap (₩5.03tril) as of Jan 5, said in a regulatory filing yesterday that it would be split into 5 separate entities on June 1, 2018. Following is the list of the entities that will be newly created as a result of yesterday's spinoff decision. It is important to note that all of these 5 entities will be separately listed on July 13, 2018. Hyosung Corp will be a holdco which will be basically responsible for affiliate management. As for Hyosung TNC, it will take the textile and trading business. Hyosung's shipbuilding and construction will go to Hyosung Heavy Industries. The industrial materials business will go to Hyosung Advanced Materials, and lastly the chemical business will head to Hyosung Chemical.Entity nameBusiness role/areaSpinoff methodEntity statusSpinoff ratioHyosung CorporationHolding company - affiliate managementEquity spinoffSurviving entity(Holdco)0.3928289- Hyosung TNCTextile and tradingEquity SpinoffNew entity(Opco)0.1232345- Hyosung Heavy IndustriesConstruction and P&amp;I (power &amp; industrial systems)Equity SpinoffNew entity(Opco)0.2655246- Hyosung Advanced MaterialsIndustrial materialsEquity SpinoffNew entity(Opco)0.1275704- Hyosung ChemicalChemicalsEquity SpinoffNew entity(Opco)0.0908416Source: DARTThe official spinoff date is June 1, 2018. The divestiture will be finalized at OGM scheduled for Apr 27, 2018. Hyosung Corporation (004800 KS) shares will be suspended for trade from May 30 to July 12, 2018. All of these 5 entities will be re-listed on July 13, 2018.Important eventsBoard resolutionJan 3, 2018Divestiture finalization at EGMApr 27, 2018Reference date for new share allocationMay 31, 2018Divestiture registrationJune 1, 2018Stock trade suspension periodMay 30 - July 12, 2018Re-listing (for both entities)July 13, 2018Source: DARTSpinoff ratio was determined based on FY17 3Q financials. Spinoff ratio calculation is as follows:As of 3Q17 (₩)Before splitHyosung CorpHyosung TNCHyosung Heavy IndustriesHyosung Advanced MaterialsHyosung ChemicalTotal equity3,6261,424451972467332Split ratio1.0000000.39282890.12323450.26552460.1275704 0.0908416Split ratio calculation-1,424/3,626451/3,626972/3,626467/3,626332/3,626Source: DART, Sanghyun ParkAs of 3Q17 (₩)Before splitHyosung CorpHyosung TNCHyosung Heavy IndustriesHyosung Advanced MaterialsHyosung ChemicalCurrent assets1,874118367989175235Cash and cash equivalents43803400Account receivables8425620138670129Unbilled construction120--120--Other financial assets38311510Other current assets11641281415Inventories715815336310191Current tax assets-9----Non-current assets6,0411,5008261,5739891,265Long-term receivables256352918813Tangible assets3,4805393121,0223721,235Investment property4286126144152Intangible assets263783911Investments in subsidiaries and associates1,5867773181945517Other non-current financial assets2378131145-0Deferred tax assets---48-0Other non-current assets29241300Total assets7,9151,6181,1922,5621,1641,500Current liabilities3,125536811,139594667Account payables1,20946323463110267Overcharged construction88--88-Borrowings1,4500321295452381Other financial liabilities14-1410Current tax liabilities60-13271613Other current liabilities30362326176Non-current liabilities1,16414160451103501Long-term account payables201792061112Long-term borrowings676113561479Other non-current financial liabilities1--1-Net defined benefit liability7191133108Deferred tax liabilities13612440-21-Other non-current liabilities80007612Total liabilities4,2891947411,5906971,168Capital1766922472216Share issuance13151416927445317Retained earnings3,0923,092----Other capital components227-1,78813-2--Total equity3,6261,424451972467332Source: DARTCho Hyun-joon (current chairman and CEO and the former CEO Cho Seok-rae's eldest son) currently owns a 14.27% stake, and his younger brother Cho Hyun-sang owns a 12.21% stake. Their father Cho Seok-rae, who is currently serving as Hyosung's honorary chairman, still retains a 10.18% stake. The total shareholding owned by the major shareholders totals 37.48%. So, unlike the other major chaebols that have recently done a similar holdco conversion job, Hyosung's case is a bit different. That is, the major shareholders' actual controlling stake (37.48%) is relatively much more stable than the other chaebols. So, this isn't really about increasing the controlling stake %. I will touch this issue in more detail later in this insight. Among the local institutional investors, the NPS is the largest with a 10.33% stake, followed by KB Asset with a 1.45% stake and Samsung Asset with a 0.91% stake.Hyosung shareholding structureCho Hyun-joonChairman &amp; CEO14.27%Cho Hyun-sangYounger brother of Cho Hyun-joon12.21%Cho Seok-raeFather of Cho Hyun-joon10.18%5 affiliate persons0.81%Total owned by the major shareholders37.48%Treasury shares5.26%Source: FnGuideHyosung's major institutional investorsNPS10.33%KB Asset1.45%Samsung Asset0.91%Mirae Asset0.45%Hanwha Asset0.30%Bearing Asset0.28%Samsung Active Asset0.22%Asset Plus0.17%Shinhan BNP0.13%NH-Amundi0.13%Macquarie0.11%Source: FnGuideThis is what the Hyosung Group governance structure will look like after the demerger.Hyosung Group governance structure post demergerThe Cho family (the major shareholder)↓37.48%Hyosung Corp- Holdco (surviving entity)↓5.26%↓5.26%↓5.26%↓5.26%↓The major shareholders own a 37.48% stake in each of these four Opcos that will be de-merged and listed separately.Hyosung TNC- Opco (new entity)Hyosung Heavy Industries- Opco (new entity)Hyosung Advanced Materials- Opco (new entity)Hyosung Chemical- Opco (new entity)Other affiliated Opcos- Local: Nautilus Hyosung, Hyosung Capital, Hyosung I&amp;D, Hyosungitx Co Ltd (094280 KS) - 35%, Hyosung Good Springs, HIS, FMK- Overseas:  Holdings USA, Australia Resource, etc.↓↓↓↓Local subsidiariesIsland SevitChin Hung International (002780 KS) - 48%-Shinwha Intertek Corp (056700 KS) - 15%Overseas subsidiariesHyosung Europe SRL and 12 othersNantong Hyosung Transformer Co., Ltd. and 4 othersHyosung Chemical Fiber (Jiaxing) Co., Ltd. and 5 others-Source: Hyosung Corp, Sanghyun Park

Hyosung Corp Demerger - Procedures, Valuations & CEO Risk

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

<a href="https://www.smartkarma.com/entities/20712" target="_blank" data-smartkarma-citation="entities:20712:1">Hyosung Corporation (004800 KS)</a> announced on January 3rd that it will transform into a holding company and four subsidiaries. The company will spin-off four business units, including textile, heavy industries, industrial materials, and chemical. The Holdco will own a 39.3% stake in the new entity while the four subsidiaries will hold a combined 60.7% stake in the new entity. The potential change of Hyosung Corp into a Holdco structure has been speculated for many months but this was the first time that Hyosung has officially stated that it will change into a Holdco structure.Overall, we believe this transformation into a Holdco and four subsidiaries structure will likely to have a POSITIVE impact on Hyosung Corp since it will enable a greater corporate transparency and investors will be able to better value the separate businesses. Although there could be some short term selling from investors that are playing the "buying on rumor, sell on news" (of the conversion to the Holdco), the Hyosung Group is likely to benefit from this change to a Holdco structure in the long run. This transformation is very reminiscent of the breakup of Hyundai Heavy Industries Group to <a href="https://www.smartkarma.com/entities/24075" target="_blank" data-smartkarma-citation="entities:24075:1">Hyundai Robotics (267250 KS)</a> (Holdco) and its subsidiaries <a href="https://www.smartkarma.com/entities/10155" target="_blank" data-smartkarma-citation="entities:10155:1">Hyundai Heavy Industries (009540 KS)</a>, <a href="https://www.smartkarma.com/entities/24082" target="_blank" data-smartkarma-citation="entities:24082:1">Hyundai Electric &amp; Energy (267260 KS)</a>, <a href="https://www.smartkarma.com/entities/24120" target="_blank" data-smartkarma-citation="entities:24120:1">Hyundai Construction Equipment Corporation (267270 KS)</a>.  The following are the five new entities (including the split ratios) that will be created for Hyosung Group in this reorganization:<ul><li>Hyosung Corp - Holding company (0.3928)</li><li>Hyosung TNC - Textile &amp; trade (0.1232)</li><li>Hyosung Heavy Industries - Heavy industries and construction (0.2655)</li><li>Hyosung Advanced Materials - Materials related (0.1276)</li><li>Hyosung Chemicals - Chemicals (0.0908)</li></ul>

Hyosung Corporation (004800 KS) announced on January 3rd that it will transform into a holding company and four subsidiaries. The company will spin-off four business units, including textile, heavy industries, industrial materials, and chemical. The Holdco will own a 39.3% stake in the new entity while the four subsidiaries will hold a combined 60.7% stake in the new entity. The potential change of Hyosung Corp into a Holdco structure has been speculated for many months but this was the first time that Hyosung has officially stated that it will change into a Holdco structure.Overall, we believe this transformation into a Holdco and four subsidiaries structure will likely to have a POSITIVE impact on Hyosung Corp since it will enable a greater corporate transparency and investors will be able to better value the separate businesses. Although there could be some short term selling from investors that are playing the "buying on rumor, sell on news" (of the conversion to the Holdco), the Hyosung Group is likely to benefit from this change to a Holdco structure in the long run. This transformation is very reminiscent of the breakup of Hyundai Heavy Industries Group to Hyundai Robotics (267250 KS) (Holdco) and its subsidiaries Hyundai Heavy Industries (009540 KS), Hyundai Electric &amp; Energy (267260 KS), Hyundai Construction Equipment Corporation (267270 KS).  The following are the five new entities (including the split ratios) that will be created for Hyosung Group in this reorganization:Hyosung Corp - Holding company (0.3928)Hyosung TNC - Textile &amp; trade (0.1232)Hyosung Heavy Industries - Heavy industries and construction (0.2655)Hyosung Advanced Materials - Materials related (0.1276)Hyosung Chemicals - Chemicals (0.0908)

Hyosung's Transformation into a Holdco + Four Subsidiaries (Part 1)

South Korea

Hyosung ONB Co., Ltd manufactures organic fertilizer for agricultural products, fruits, flowers, and plants.  The company also produces microorganism fertilizers and distributes reflection films.

Sung Bo Chemicals Co., Ltd. manufactures basic chemicals used in the production of pesticide fertilizers.  The Company also has research operations for the development of new pesticides.

CQV Co Ltd manufactures pigment materials and electronic materials.  The Company offers products that include Pearlescent pigments consist of laminar crystals and ceramic compound powder.

Okong Corporation manufactures and markets various sealing products used in construction, automobile, toy, furniture industries.  The Company's products include vinyl acetate resin emulsion adhesives, synthetic rubber adhesives, hot melt adhesives, abrasives, sealants, waxes, rubbing compounds, and polishing materials.

Dae Won Chemical Co., Ltd. manufactures and markets synthetic leather used in footwear, bags, and textile manufacturing.  The Company also produces wallpaper products under the brand names Arirang, Santa Fe, and Tiffany.  In addition, Dae Won also refines and recycles waste solvents produced during the synthetic leather manufacturing process.

Ilya Co., Ltd. manufactures and sells plastic molding and injection products for telecommunications equipment and accessories.  The Company's products include cellular phone shields, PDA covers, and fax machine hoods.

Renewable Energy Platform Co., Ltd. manufactures and markets chemical materials. The Company produces and sells secondary battery electrolyte materials, etchant materials, and other related products. Renewable Energy Platform also produces adult diaper products.

SH Energy & Chemical Co., Ltd. manufactures and markets polymer products such as expandable polystyrene (EPS) resins.  The Company supplies its products to the construction and packaging industries for thermal insulating, moisture proofing, shock absorption, and fire protection purposes.  SH Energy & Chemical also produces chemicals such as polyamide powder, ANYBESTA.

Uno & Company Ltd. designs and manufactures synthetic fibers for artificial hair. The Company's main products include PVC fibers, heat resistant fibers, and special fibers.

KPM Tech Co., Ltd. manufactures chemical products such as brightener, various coating and plating chemicals, and grease removers.  The Company also manufactures automatic plating equipment mainly used by electronic product makers.

Mipox Corp. manufactures polishing films and liquid used for semiconductors, computer heads, and Liquid Crystal(LC).  The Company also manufactures polishing machinery, coolant, and optical fiber cleaner.

CHEMIPROKASEI KAISHA, LTD. makes UV absorption chemicals for plastic products, printing paper, paints, and textiles.  The Company also makes rust inhibitor related chemicals, agrochemical and dyestuff intermediates, and wood/lumber preservative chemicals.

Hindustan Organic Chemicals Limited manufactures organic and inorganic chemicals and petrochemicals. The Company's products include nitrobenzene, aniline III, phenol, acetone, monochlorobenzene, nitrochlorobenzene, caustic soda-chlorine and hydrogen peroxide. The Company also supplies technologies for diphenyl methane diisocyanate and polyurethane systems.

Shuang Bang Industrial Corp. manufactures and markets chemical, synthetic resin, PU lamination, coating, and TPU bonding products.

International Carbide Technology Co Ltd is involved in developing firestop system, including smoke suppressant, fire retardant for foam, rubber and plastic, fireproof paint etc

Jiutian Chemical Group Ltd. manufactures chemicals.  The Company produces and sells methanol, methylamine, dimethylformamide and gas.

Aries Agro Limited manufactures a wide range of agricultural chemicals. The Company's products include multi-micro nutrient fertilizers, chelated micro nutrient fertilizers, specialty soluble fertilizers, and anti-bacterial products for agricultural use.

Yusei Holdings Limited designs, develops, and fabricates precision plastic injection molds and plastic components.

ASAHIPEN CORPORATION manufactures and markets household and other types of paints.  The Company also sells household products such as wall paper and other home-improvement items.

Pato Chemical Industry Public Company Limited is the importer, formulator and distributor of pesticide under the Pato Globe trademark. The Company also produces agrochemical products for distributing to other companies under their own trademarks including Weiler Craft, Butterfly, Victory Flag, Lion Rides Missile, and Golden Gate brand.

Shinwha Intertek Corporation produces and sells adhesive tapes for industrial uses.  The Company's products include glass cloth tapes, acetate tapes, aluminum tapes, and cotton tapes which have thermal, electric, implosion, and weather resistances.  Shinwha Intertek also manufactures electric stoves that uses induction heating.

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Shinwha Intertek (056700 KS)

Hyosung Corp Demerger - Procedures, Valuations & CEO Risk

We have another holdco conversion play here in Korea. Hyosung Corporation (004800 KS), which is KOSPI's 60th largest company by market cap...

Sanghyun Park

Hyosung's Transformation into a Holdco + Four Subsidiaries (Part 1)

Hyosung Corporation (004800 KS) announced on January 3rd that it will transform into a holding company and four subsidiaries. The company will...

Douglas Kim

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