Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

<ul>
<li>Amid sharply rising interest rates and greater economic uncertainty, the subject of loan guarantees to affiliates among Korean companies has become more important. </li>
<li>In this insight, we discuss a pair trade between Shinsegae (long) and Hyundai Dept Store Co (short).</li>
<li>Four major reasons why we prefer Shinsegae vs Hyundai Dept Store include negative impact from equity spin-off, increasing leverage (including loan guarantees), valuations, and economies of scale. </li>
</ul>


Amid sharply rising interest rates and greater economic uncertainty, the subject of loan guarantees to affiliates among Korean companies has become more important. 
In this insight, we discuss a pair trade between Shinsegae (long) and Hyundai Dept Store Co (short).
Four major reasons why we prefer Shinsegae vs Hyundai Dept Store include negative impact from equity spin-off, increasing leverage (including loan guarantees), valuations, and economies of scale. 


Korea Loan Guarantees: A Pair Trade Between Shinsegae & Hyundai Dept Store

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Event-Driven

<ul>
<li>With the review period complete, we see 1 high probability change and 1 lower probability change for the <a href="https://www.smartkarma.com/entities/korea-stock-exchange-kospi-200-index" target="_blank" data-smartkarma-citation="entities:26021:1" rel="noopener">Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX)</a> in December.</li>
<li>We estimate passive trackers will need to trade over 10 days of ADV on the high probability names. There are indications that there are pre-positions built on the stocks.</li>
<li>With short-sell eligibility flipping post implementation of the changes, a lot of pre-positions will be unwound prior to implementation and there will be trading opportunities on the reverse side.</li>
</ul>


With the review period complete, we see 1 high probability change and 1 lower probability change for the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) in December.
We estimate passive trackers will need to trade over 10 days of ADV on the high probability names. There are indications that there are pre-positions built on the stocks.
With short-sell eligibility flipping post implementation of the changes, a lot of pre-positions will be unwound prior to implementation and there will be trading opportunities on the reverse side.


KOSPI200 Index Rebalance Preview: Potential Changes, Excess Volumes & Pre-Positioning

<ul>
<li>90% of the way through the review period of the <a href="https://www.smartkarma.com/entities/korea-stock-exchange-kospi-200-index" target="_blank" data-smartkarma-citation="entities:26021:1" rel="noopener">Kospi 200 Index</a> December rebalance, we see two potential changes to the index. There is another potential inclusion failing liquidity.</li>
<li>This rebalance is expected to have the lowest turnover as compared to any of the <a href="https://www.smartkarma.com/entities/korea-stock-exchange-kospi-200-index" target="_blank" data-smartkarma-citation="entities:26021:1" rel="noopener">Kospi 200 Index</a> rebalances over the last few years. Partly lower markets, partly no IPOs.</li>
<li>That said, passive trackers are estimated to need to trade over 10 days of ADV on one of the potential adds and both potential deletes.</li>
</ul>


90% of the way through the review period of the Kospi 200 Index December rebalance, we see two potential changes to the index. There is another potential inclusion failing liquidity.
This rebalance is expected to have the lowest turnover as compared to any of the Kospi 200 Index rebalances over the last few years. Partly lower markets, partly no IPOs.
That said, passive trackers are estimated to need to trade over 10 days of ADV on one of the potential adds and both potential deletes.


KOSPI200 Index Rebalance Preview: Few Changes, Big Impact

<ul>
<li>On 23 September, Hanwha Solutions announced a set of restructuring measures which are probably the biggest ever moves by the company in the past 50 years.</li>
<li>The spin-off of the Hanwha Galleria is a good move. Clearly, having both the renewable energy and a luxury department store business under one roof does not make much sense.</li>
<li>We also like the company's move expand its U.S. solar module production capacity. The total amount of potential benefit could be nearly US$2 billion over the next decade. </li>
</ul>


On 23 September, Hanwha Solutions announced a set of restructuring measures which are probably the biggest ever moves by the company in the past 50 years.
The spin-off of the Hanwha Galleria is a good move. Clearly, having both the renewable energy and a luxury department store business under one roof does not make much sense.
We also like the company's move expand its U.S. solar module production capacity. The total amount of potential benefit could be nearly US$2 billion over the next decade. 


Hanwha Solutions: Biggest Restructuring Measures in 50 Years

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.

<ul>
<li>The value accretion that will occur by unlocking treasury shares will be more significant than Hyundai Dept. The treasury shares account for 10.64%, compared with 6.61% for Hyundai Dept.</li>
<li>Neither Holdco nor Opco will likely remain in the KOSPI 200 after relisting. So we cannot expect PASSIVE inflow at the time of relisting.</li>
<li>A tender will likely follow. However, neither is available for shorting. So, we should use Opco's overheated price adjustment as an exit timing for our positions aimed at value accretion.</li>
</ul>


The value accretion that will occur by unlocking treasury shares will be more significant than Hyundai Dept. The treasury shares account for 10.64%, compared with 6.61% for Hyundai Dept.
Neither Holdco nor Opco will likely remain in the KOSPI 200 after relisting. So we cannot expect PASSIVE inflow at the time of relisting.
A tender will likely follow. However, neither is available for shorting. So, we should use Opco's overheated price adjustment as an exit timing for our positions aimed at value accretion.


Trading Angles of Hyundai Green Food Demerger, with Potential Tender & Hive-Off

South Korea

Shinsegae Co., Ltd. operates department stores in South Korea.  The Company retails food, clothing, household goods, electronics, and other items through several branch stores.

Lotte Shopping Co., Ltd. operates department stores and discount stores in South Korea.  The Company retails clothing, household goods, foods and other items through several branches.  Lotte Shopping also operates supermarkets and movie theaters.

GwangjuShinsegae Co., Ltd. manages department store in Gwangju city located in southwest of Korea.  The Company's merchandise includes men and women's clothes, foods, and consumer goods.

Bubang Co., Ltd manufactures and distributes household electrical appliances, especially rice cooker and steamer.

SAVEZONE I&C Corp. operates discount stores that sell consumer products, foods, clothing, and appliances.  The Company also runs a community center, which offers cultural services.

VenueG Co.,Ltd. operates a department store and discount store. The Company markets food, clothing, appliance, and household products. VenueG also operates real estate development business.

Daegu Department Store Co., Ltd. operates a department store in Daegu. The Company also sells its goods through a Internet shopping mall.

Hyundai Home Shopping Network Corporation  mechandises consumer products. The Company's products include clothes, home appliances, food, and luxuries. Hyundai Home Shopping retails through TV home shoppoing channels, catalogs, and the Inte rnet shopping mall.

Hyundai Home Shopping Network (057050 KS)

Shinsegae International Co., Ltd. was spun off from Shinsegae in 1996.  The company imports and distributes famous foreign brands and manufactures/distribut es domestic brand.  The Company's line of business includes the wholesale distribution of men's and women's apparel.

CJ ENM, Ltd. retails clothes, kitchen utensils, home appliances, and jewelry.  The Company sells its merchandise through TV home shopping channels, catalogs, and the Internet shopping mall.  CJ ENM operates cable television business through a subsidiary.

V-Mart Retail Limited owns, operates, and franchises a chain of family lifestyle stores in India. The Company operates medium sized hypermarket format retail stores that sell clothes, accessories, and footwear for men, women, and kids; cosmetics, luggage, toys, and games; and food, non-food, and staple items.

Dashang Group Co., Ltd. owns and operates department stores in the northeast of China.  The Company also provides entertainment and food services.

Groupon, Inc. operates a shopping website that shares information on local goods, services, and cultural events for businesses and consumers worldwide. The Company provides information on activities, travel destinations, consumer products, and live events.

Rainbow Department Store Co., Ltd. operates chain department store.  The Company operates retail department stores and franchises shopping malls.

Chengdu Hongqi Chain Company Limited operates convenience stores chain. The Company's main products are food, alcoholic drinks and tobacco, and other daily necessities.

Wuhan Department Store Group Co., Ltd. owns and operates department stores. Through its subsidiaries, the Company also invests in real estate development, property management, and food services.

Wuhan Department Store Group Co Ltd. (000501 CH)

Bukalapak.com PT Tbk provides e-discretionary services. The Company offers range of electronics, food, shoes, apparel, watches, bags, cosmetics products, and other accessories. Bukalapak.com serves customers in Indonesia.

Nanjing Xinjiekou Department Store Co. Ltd. operates department stores in Nanjing, Jiangsu.  Through its subsidiaries, the Company also develops real estate and manufactures pharmaceuticals.

Nanjing Xinjiekou Department S (600682 CH)

Hangzhou Jiebai Group Co., Ltd. operates department stores, invests in import and export trading, operates hotels, and provides advertising services.

Beijing Cuiwei Tower Co. Ltd. retails diversified products. The Company sells apparel, jewelry, cosmetics, sports products, home appliances, handicrafts, photographic equipment, household goods, and other goods through its department stores. Beijing Cuiwei Tower also provides online sales services.

Hyundai Department Store Co., Ltd. operates department stores under the name of Hyundai Department over nationwide.  The Company also produces home shopping programs for cable channels and sells merchandise through home shopping programs.

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Hyundai Dept Store Co (069960 KS)

Korea Loan Guarantees: A Pair Trade Between Shinsegae & Hyundai Dept Store

Four major reasons why we prefer Shinsegae vs Hyundai Dept Store include negative impact from equity spin-off, increasing leverage (including loan...

Douglas Kim

KOSPI200 Index Rebalance Preview: Potential Changes, Excess Volumes & Pre-Positioning

There could be 2 changes to the KOSPI200 in December. Passive trackers will need to trade over 10x ADV on a few stocks. Excess volume & short...

Brian Freitas

KOSPI200 Index Rebalance Preview: Few Changes, Big Impact

There should be two changes at the December rebalance. There could be a third if the stock passes the liquidity test. Passive trackers are...

Brian Freitas

Hanwha Solutions: Biggest Restructuring Measures in 50 Years

On 23 September, Hanwha Solutions announced a set of restructuring measures which are probably the biggest ever moves by the company in the past 50...

Douglas Kim

Trading Angles of Hyundai Green Food Demerger, with Potential Tender & Hive-Off

This post is a deep-dive investigation into the Hyundai Green Food demerger event, with a potential tender offer and hive-off that will likely...

Sanghyun Park

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