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

Sanghyun Park

Korea / Special Sits, Pairs, Index Rebalancing

Clepsydra Capital

Investigate special situations, pairs, and index rebalancing trades in Korea.

Event-Driven

<ul>
<li>The local market believes that the FSS plans to push forward with the 10% limitation measure. Last week's seminar served as a proactive way to inform the market about it.</li>
<li>The market is paying attention to the potential emergence of stock overhang risks due to the establishment of limits on listed companies' treasury stock holdings.</li>
<li>Lotte Holdings and Doosan Corp are considered to fall into this category. They may attempt to sell treasury stock early on to meet the 10% limit.</li>
</ul>


The local market believes that the FSS plans to push forward with the 10% limitation measure. Last week's seminar served as a proactive way to inform the market about it.
The market is paying attention to the potential emergence of stock overhang risks due to the establishment of limits on listed companies' treasury stock holdings.
Lotte Holdings and Doosan Corp are considered to fall into this category. They may attempt to sell treasury stock early on to meet the 10% limit.


Korea FSS Favors 10% Treasury Stock Limit over Mandatory Cancellation: At-Risk Names

<p>The Seoul Bankruptcy Court and Anjin Accounting Corporation (the M&amp;A advisory) are scheduled to hold a main bid for the sale of Eastar Jet on June 14. Preliminary bidders who have completed the preliminary due diligence by June 7 are eligible to participate in the main bid. Then, we will likely see the name of a bid winner about a week later, around June 21.</p><p>Harim Group also issued a letter of intent (LOI). In the case of Harim, Pan Ocean will be an acquiring company.</p><p>Eastar Jet is a low-cost airline, which has been in financial trouble. It has been undergoing corporate rehabilitation since February this year. Well, Eastar Jet had once found a new owner back in 2019. Aekyung Group won the bid to take over Eastar Jet. However, Aekyung abandoned the acquisition of Eastar Jet last year due to financial insolvency and COVID-19.</p><p>Harim must acquire a 39.64% controlling stake owned by Eastar Holdings. The sale price of Eastar Jet is about ₩150B. However, the actual cost is estimated to be over ₩300B. Eastar Jet's total debt is about ₩219B, of which 65B is unpaid wages, suggesting that the actual debt that the acquirer has to bear is around ₩200B.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Eastar Jet financials, as of 1Q21"}'>Eastar Jet quarterly financials, as of 1Q21</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Sales"}'>Sales</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":90.8}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩90.8B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Operating profit"}'>Operating profit</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-35.9}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>-₩35.9B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Net profit"}'>Net profit</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-41}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>-₩41.0B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Cash holding"}'>Cash holding</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩1.0B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Total liabilities"}'><strong>Total liabilities</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":218.7}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'><strong>₩218.7B</strong></td>
</tr>
<tr>
<td><strong> - Unpaid wages</strong></td>
<td style="text-align: right;"><strong>₩64.9B</strong></td>
</tr>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><p>Harim plans to use Pan Ocean, a shipping company, as the main vehicle to acquire Eastar Jet. Pan Ocean is the second-largest shipping company in Korea in terms of sales. As of the end of the first quarter, its cash equivalent assets stood at ₩150B. However, Harim is said to be seeking a FI (financial investor).</p><p>What is Harim's big picture here, business-wise? Pan Ocean can expand its aviation logistics business by leveraging Eastar Jet's aviation resources. Harim plans to grow into a more comprehensive logistics company that encompasses sea and air.</p>

The Seoul Bankruptcy Court and Anjin Accounting Corporation (the M&amp;A advisory) are scheduled to hold a main bid for the sale of Eastar Jet on June 14. Preliminary bidders who have completed the preliminary due diligence by June 7 are eligible to participate in the main bid. Then, we will likely see the name of a bid winner about a week later, around June 21.Harim Group also issued a letter of intent (LOI). In the case of Harim, Pan Ocean will be an acquiring company.Eastar Jet is a low-cost airline, which has been in financial trouble. It has been undergoing corporate rehabilitation since February this year. Well, Eastar Jet had once found a new owner back in 2019. Aekyung Group won the bid to take over Eastar Jet. However, Aekyung abandoned the acquisition of Eastar Jet last year due to financial insolvency and COVID-19.Harim must acquire a 39.64% controlling stake owned by Eastar Holdings. The sale price of Eastar Jet is about ₩150B. However, the actual cost is estimated to be over ₩300B. Eastar Jet's total debt is about ₩219B, of which 65B is unpaid wages, suggesting that the actual debt that the acquirer has to bear is around ₩200B.





Eastar Jet quarterly financials, as of 1Q21

Sales
₩90.8B


Operating profit
-₩35.9B


Net profit
-₩41.0B


Cash holding
₩1.0B


Total liabilities
₩218.7B


 - Unpaid wages
₩64.9B

Source: DART

Harim plans to use Pan Ocean, a shipping company, as the main vehicle to acquire Eastar Jet. Pan Ocean is the second-largest shipping company in Korea in terms of sales. As of the end of the first quarter, its cash equivalent assets stood at ₩150B. However, Harim is said to be seeking a FI (financial investor).What is Harim's big picture here, business-wise? Pan Ocean can expand its aviation logistics business by leveraging Eastar Jet's aviation resources. Harim plans to grow into a more comprehensive logistics company that encompasses sea and air.

Harim Holdings Stub with Pan Ocean: Eastar Jet Takeover Situation

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

<p>It was announced after the market close on April 4th that <strong><a href="https://www.smartkarma.com/entities/24064" target="_blank" data-smartkarma-citation="entities:24064:1">Jeil Holdings (003380 KS)</a></strong><strong>will merge with </strong><strong><a href="https://www.smartkarma.com/entities/18976" target="_blank" data-smartkarma-citation="entities:18976:1">Harim Holdings Co Ltd (024660 KS)</a>. </strong>After the merger, the NEWCO will be called Harim Holdings. Jeil Holdings currently has a market cap of 1.05 trillion won (US$990 million). Jeil Holdings currently have a 68.1% stake in Harim Holdings.</p><p><strong>Jeil Holdings </strong>is a holding company for the biggest chicken producer (Harim) and dry bulk shipper (PanOcean) in Korea. This merger should have a positive impact on…</p>

It was announced after the market close on April 4th that Jeil Holdings (003380 KS)will merge with Harim Holdings Co Ltd (024660 KS). After the merger, the NEWCO will be called Harim Holdings. Jeil Holdings currently has a market cap of 1.05 trillion won (US$990 million). Jeil Holdings currently have a 68.1% stake in Harim Holdings.Jeil Holdings is a holding company for the biggest chicken producer (Harim) and dry bulk shipper (PanOcean) in Korea. This merger should have a positive impact on…

Korea M&A Spotlight: Jeil Holdings Merges With Harim Holdings

Equity Capital Markets

<p>This report is part 2 of the Jeil Holdings IPO. Jeil Holdings is expected to complete its IPO in late June. Jeil Holdings is the Holdco for the biggest chicken producer &amp; dry bulk shipper in Korea.  </p><ul><li>Expected IPO offer price per share: 20,700 won (low)/ 22,700 won (high)</li><li>Number of Shares for IPO: 20.38 m shares (new shares)</li><li>IPO base deal size: US$377m (low);  US$519m (high)</li></ul><p>The following is how the bankers determined the IPO price range for Jeil Holdings: First, the value of its public affiliates, private affiliates, and brand value were added and net debt was subtracted, resulting in a value of 2.2 trillion won. After subtracting for holdco discount (20%), this resulted in a value of 1.8 trillion won. On a per share basis, this resulted in value per share of 25,300 won. After subtracting IPO discount rates of 10.3% to 18.2%, this suggested in IPO price range of 20,700 won to 22,700 won.</p>

This report is part 2 of the Jeil Holdings IPO. Jeil Holdings is expected to complete its IPO in late June. Jeil Holdings is the Holdco for the biggest chicken producer &amp; dry bulk shipper in Korea.  Expected IPO offer price per share: 20,700 won (low)/ 22,700 won (high)Number of Shares for IPO: 20.38 m shares (new shares)IPO base deal size: US$377m (low);  US$519m (high)The following is how the bankers determined the IPO price range for Jeil Holdings: First, the value of its public affiliates, private affiliates, and brand value were added and net debt was subtracted, resulting in a value of 2.2 trillion won. After subtracting for holdco discount (20%), this resulted in a value of 1.8 trillion won. On a per share basis, this resulted in value per share of 25,300 won. After subtracting IPO discount rates of 10.3% to 18.2%, this suggested in IPO price range of 20,700 won to 22,700 won.

Jeil Holdings IPO (Part 2): Holdco for the Biggest Chicken Producer & Dry Bulk Shipper in Korea

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Japanese and Asian equity long/short strategies

Uzabase

Specialising in Japanese and Asian equity long/short strategies with a focus on rigorous, but targeted quantitative analysis to temper evaluations of company strategy, potential and vision. At Uzabase, our team of analysts provides coverage of industry dynamics with a local Asian flavour on Speeda, our financial information platform. Going forward we are aiming to channel our focus toward thematic research on emerging industries and company research.

Thematic (Sector/Industry)

<div class="content-highlight"><h2>Japan</h2></div><h2>Are Honda and Nissan's Brands Overrated?</h2><p><a href="https://www.smartkarma.com/profiles/988" target="_blank" data-smartkarma-citation="accounts:988">Noriaki Hirakata, CFA</a> examines perceptions vs. reality in <a href="https://www.smartkarma.com/insights/are-the-japanese-brands-still-competitive-quality-performance" target="_blank" data-smartkarma-citation="insights:9701">Are the Japanese Brands Still Competitive? (Quality Performance)</a>. He notes that Korean and American manufacturers have made significant progress in improving the quality of their vehicles and that a Japan premium may no longer be justified for any brand other than, to an extent, <a href="https://www.smartkarma.com/entities/73" target="_blank" data-smartkarma-citation="entities:73:1">Toyota Motor Corp (7203 JP)</a>.</p><p>Examining the individual stocks of <a href="https://www.smartkarma.com/entities/154" target="_blank" data-smartkarma-citation="entities:154:1">Honda Motor Co Ltd (7267 JP)</a> and <a href="https://www.smartkarma.com/entities/72" target="_blank" data-smartkarma-citation="entities:72:1">Nissan Motor Co Ltd</a>…</p>

JapanAre Honda and Nissan's Brands Overrated?Noriaki Hirakata, CFA examines perceptions vs. reality in Are the Japanese Brands Still Competitive? (Quality Performance). He notes that Korean and American manufacturers have made significant progress in improving the quality of their vehicles and that a Japan premium may no longer be justified for any brand other than, to an extent, Toyota Motor Corp (7203 JP).Examining the individual stocks of Honda Motor Co Ltd (7267 JP) and Nissan Motor Co Ltd…

The Week That Was in NorthAsia@Smartkarma - Japanese Autos, Toshiba, Lineage and Accordia Golf Trust

South Korea

Harim Holdings Co., Ltd. is an investment holding company. The Company, through its subsidiaries, manufactures packaged chicken, and chicken products.

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Harim Holdings (024660 KS)

Korea FSS Favors 10% Treasury Stock Limit over Mandatory Cancellation: At-Risk Names

Financial authorities in Korea are practically pushing forward with a 10% limit on treasury stock. This post explores the potential targets that...

Sanghyun Park

Harim Holdings Stub with Pan Ocean: Eastar Jet Takeover Situation

This post looks into the Harim Stub with Pan Ocean as the main subsidiary amid the Eastar Jet acquisition from a stub trade angle.

Sanghyun Park

Korea M&A Spotlight: Jeil Holdings Merges With Harim Holdings

It was announced after the market close on April 4th that Jeil Holdings (003380 KS)will merge with Harim Holdings Co Ltd (024660 KS). After the...

Douglas Kim

Jeil Holdings IPO (Part 2): Holdco for the Biggest Chicken Producer & Dry Bulk Shipper in Korea

This report is part 2 of the Jeil Holdings IPO. Jeil Holdings is expected to complete its IPO in late June. Jeil Holdings is the Holdco for the...

Douglas Kim

The Week That Was in NorthAsia@Smartkarma - Japanese Autos, Toshiba, Lineage and Accordia Golf Trust

JapanAre Honda and Nissan's Brands Overrated?Noriaki Hirakata, CFA examines perceptions vs. reality in Are the Japanese Brands Still Competitive?...

Mio Kato

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