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

Below is the amount of inheritance tax for Samsung founding family members. They were given a five-year grace period. So, one-sixth was paid on April 30th this year, the due date of payment, and the remaining five-sixths have to be paid by the end of each year over five years.In the case of Lee Jae-yong, the total inheritance tax is ₩2.90T, and he paid ₩0.48T in April of this year. And he has to make a total of 5 payments of ₩ 0.48T for five years from the end of this year.









The inheritance tax burden for each family member
Lee Jae-yong
Hong Ra-hee
Lee Bu-jin
Lee Seo-hyun


Total
₩2.90T
₩3.10T
₩2.60T
₩2.40T

 

: Already-paid (one-sixth) at April-end of 2021
₩0.48T
₩0.52T
₩0.43T
₩0.40T


Remaining (five-sixths)
₩2.42T
₩2.58T
₩2.17T
₩2.00T


: Due at the yearend of 2021
₩0.48T
₩0.52T
₩0.43T
₩0.40T

Source: DART &amp; KRX FIND

Of course, the inheritance tax of this size is not a small amount for them either. Their wealth consists mostly of stocks. Artworks and real estate are difficult to liquidate. Most of the cash consists of dividends, but short-term cash holdings are estimated to be negligible.Below are the shares they each hold.









Stake holding in %
Lee Jae-yong
Hong Ra-hee
Lee Bu-jin
Lee Seo-hyun


Samsung Electronics Co Ltd
1.63%
2.30%
0.93%
0.93%


Samsung Electronics Co Ltd Preference Shares Non Voting
0.02%
0.03%
0.02%
0.02%


Samsung C&amp;T Corp
18.13%
0.97%
6.24%
6.24%


Samsung Life Insurance co., Ltd
10.44%
0.00%
6.92%
3.46%


Samsung SDS Co Ltd
9.20%
0.00%
3.90%
3.90%

Source: DART &amp; KRX FIND

And below is the current market value of these shares. If we look at the value of their stakes, it is enough to pay the inheritance tax.









Stake holding in value
Lee Jae-yong
Hong Ra-hee
Lee Bu-jin
Lee Seo-hyun


Samsung Electronics Co Ltd
₩6.84T
₩9.63T
₩3.89T
₩3.89T


Samsung Electronics Co Ltd Preference Shares Non Voting
₩0.01T
₩0.01T
₩0.01T
₩0.01T


Samsung C&amp;T Corp
₩4.07T
₩0.22T
₩1.40T
₩1.40T


Samsung Life Insurance co., Ltd
₩1.47T
₩0.00T
₩0.97T
₩0.49T


Samsung SDS Co Ltd
₩1.12T
₩0.00T
₩0.47T
₩0.47T



: Total
₩13.50T
₩9.87T
₩6.75T
₩6.26T

Source: DART &amp; KRX FIND

The problem, however, is to pay the inheritance tax without compromising the control of the group.First, they appear to have covered their first payment in April by using dividends and credit loans.And they recently announced that they plan to cover the second payment at the end of this year through the sale of their shares. As shown below, they seem to have carefully chosen which to sell. In the case of Lee Bu-jin and Lee Seo-hyun (the daughters), the amount to be paid in the first and second payments and the amount raised by this year are roughly the same. Hong Ra-hee (the spouse) raised money (₩2.40T) that was significantly more than the amount owed right away (₩0.96T). The reason for this has not yet been clearly disclosed.









Personal financings
Lee Jae-yong
Hong Ra-hee
Lee Bu-jin
Lee Seo-hyun


Bank lines of credit: April 2021
₩0.00T
₩1.00T
₩0.33T
₩0.39T


: Annual interest rate
-
3.79%
2.40%
2.52%


: Annual interest payment
-
₩37.92B
₩7.94B
₩9.74B


: Lenders

Woori Bank, Hana Bank, KIC, &amp; Meritz Securities
Hana Bank &amp; KIC
Hana Bank, KIC, &amp; Hana Securities



Stake disposal (trust contract): October~December 2021
₩0.00T
₩1.40T
₩0.24T
₩0.48T


: Stake for sale
-
Samsung Electronics (0.33%)
Samsung SDS (1.95%)
Samsung SDS (1.95%) &amp; Samsung Life (1.73%)


: Trust institution
-
KB Bank
KB Bank
KB Bank


: Contract date
-
2021. 10. 05
2021. 10. 05
2021. 10. 05


: Contract ends
-
2022. 04. 25
2022. 04. 25
2022. 04. 25


: Disposal deadline
-
N/A
N/A
2021. 12. 24



: Total
₩0.00T
₩2.40T
₩0.57T
₩0.87T

Source: DART

And most importantly, Lee Jae-yong hasn't raised a dime this year. He appears to have made up his first payment with only the cash he had (probably financed mainly through dividends).Therefore, the market is interested in Lee Jae-yong's financing plan to pay the upcoming inheritance tax payments, which might have been one of the reasons why the stock prices of Samsung Electronics and Samsung SDS have continued to underperform the market.In the end, Jae-Yong Lee's only options for financing are dividends, bank loans, and the sale of shares. In the case of stake sale, Samsung Electronics and Samsung SDS are the only stakes that can be sold without damaging management rights.

Samsung Lee Family Inheritance Tax Payment Situation & Suggested Trading Positions

TMT & Consumer Independent Equity Research Analyst, Obex Capital Research

Aaron Gabin

TMT & Consumer Independent Equity Research Analyst

TMT & Consumer Independent Equity Research

Obex Capital Research

“Obex” is Latin for Barriers to Entry. Obex Capital Management’s investment philosophy is driven by an intense focus on which business model’s Barriers to Entry are able to withstand the ever increasing competitive disruption in the TMT and Consumer Sectors.

Equity Bottom-Up

<p>Intel’s CEO Pat Gelsinger is a religious man. In the 2000s, he wrote “Balancing Your Family, Faith, and Work” and “The Juggling Act: Bringing Balance to Your Faith, Family, and Work.” If one is an Intel investor today, you too need to have deep faith and believe that miracles are possible.  Like believing that Intel, who will have grown revenues at a 3.7% CAGR from 2011–2021 (inclusive of acquiring MobileEye and Altera), has lost its way on process manufacturing, and is hemorrhaging market share to AMD and ARM-based CPUs is poised to grow revenues at a 10–12% CAGR over the next 4-5 years. We are not believers.</p><div class="content-highlight"><p>Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.</p></div>

Intel’s CEO Pat Gelsinger is a religious man. In the 2000s, he wrote “Balancing Your Family, Faith, and Work” and “The Juggling Act: Bringing Balance to Your Faith, Family, and Work.” If one is an Intel investor today, you too need to have deep faith and believe that miracles are possible.  Like believing that Intel, who will have grown revenues at a 3.7% CAGR from 2011–2021 (inclusive of acquiring MobileEye and Altera), has lost its way on process manufacturing, and is hemorrhaging market share to AMD and ARM-based CPUs is poised to grow revenues at a 10–12% CAGR over the next 4-5 years. We are not believers.Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.

Overseas Chinese Equities, Aequitas Research

Ming Lu

Overseas Chinese Equities

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

<ul>
<li>In 3Q21, the whole smartphone market was weak due to the chip shortage.</li>
<li>Apple took back the No. 2 place from Xiaomi in shipment market share.</li>
<li>Samsung is self-supporting in chip supply, but Xiaomi is not.</li>
<li>Both of Apple and Samsung's margins are higher than Xiaomi's.</li>
</ul>


In 3Q21, the whole smartphone market was weak due to the chip shortage.
Apple took back the No. 2 place from Xiaomi in shipment market share.
Samsung is self-supporting in chip supply, but Xiaomi is not.
Both of Apple and Samsung's margins are higher than Xiaomi's.


Xiaomi (1810 HK): Weak Market in 3Q21 and Not Competitive Internationally

Forensic Analyst

Jason Yap, CFA

Forensic Accounting

<p><a href="https://www.smartkarma.com/entities/nanofilm-technologies-international" target="_blank" data-smartkarma-citation="entities:29700:1" rel="noopener">Nanofilm (NANO SP)</a> is a Singapore-based nanotechnology solutions provider. Its principal business is the manufacturing and distribution of advanced materials and nanoproducts for the consumer electronics, communications, and automotive industries.</p><p>Founded in 1999 by Executive Chairman Dr Shi Xu, who was then an associate professor at Nanyang Technology University (NTU)'s School of Electrical and Electronic Engineering, Nanofilm raised approximately SGD470.1 million in IPO proceeds in October 2020.</p><p>During its short history as a public company, the company had to endure significant regulator and investor scrutiny following sub-par H1 2021 results and senior management changes, including the abrupt resignations of former CEO, Mr Lee Liang Huang and former COO, Mr Ricky Tan, in quick succession (June and August 2021 respectively). </p><p>Dr Shi, assumed the role of interim CEO, until the <a href="https://www.businesstimes.com.sg/companies-markets/nanofilm-appoints-new-ceo-says-it-continues-to-see-growth-momentum-for-business#:~:text=MAINBOARD%2DLISTED%20Nanofilm%20Technologies%20International,on%20Thursday%20(Oct%2014)." target="_blank" rel="noopener">recent appointment</a> of Mr Gary Ho Hock Yong, as Nanofilm's CEO.  Dr Shi served as the company's CEO from 1999 to 2017. </p><p>On 14 October 2021, Nanofilm provided a business update for Q3 2021, which highlighted continued growth momentum despite a volatile business environment, amid the COVID-19 pandemic and supply chain disruptions. </p><p>In this Insight, we examine Nanofilm's financial and business risks based on its IPO prospectus disclosures and certain new risks that emerged given latest available facts and developments, including but not limited to the following: </p><ol>
<li>High Customer Concentration  </li>
<li>Competition from Alternative Products and Solutions</li>
<li>Significant Management Changes </li>
<li>Management Share Disposals </li>
</ol><p>Accordingly, we highlight the key areas of concern for investors. </p>

Nanofilm (NANO SP) is a Singapore-based nanotechnology solutions provider. Its principal business is the manufacturing and distribution of advanced materials and nanoproducts for the consumer electronics, communications, and automotive industries.Founded in 1999 by Executive Chairman Dr Shi Xu, who was then an associate professor at Nanyang Technology University (NTU)'s School of Electrical and Electronic Engineering, Nanofilm raised approximately SGD470.1 million in IPO proceeds in October 2020.During its short history as a public company, the company had to endure significant regulator and investor scrutiny following sub-par H1 2021 results and senior management changes, including the abrupt resignations of former CEO, Mr Lee Liang Huang and former COO, Mr Ricky Tan, in quick succession (June and August 2021 respectively). Dr Shi, assumed the role of interim CEO, until the recent appointment of Mr Gary Ho Hock Yong, as Nanofilm's CEO.  Dr Shi served as the company's CEO from 1999 to 2017. On 14 October 2021, Nanofilm provided a business update for Q3 2021, which highlighted continued growth momentum despite a volatile business environment, amid the COVID-19 pandemic and supply chain disruptions. In this Insight, we examine Nanofilm's financial and business risks based on its IPO prospectus disclosures and certain new risks that emerged given latest available facts and developments, including but not limited to the following: 
High Customer Concentration  
Competition from Alternative Products and Solutions
Significant Management Changes 
Management Share Disposals 
Accordingly, we highlight the key areas of concern for investors. 

Understanding Nanofilm (Nano SP)'s 3Cs - Customer Concentration, Competition and Management Changes

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

Equity Capital Markets

<div><p>Kakao Pay (KP), one of South Korea’s largest payment and financial services apps, aims to raise up to US$1.3bn in its South Korean IPO. Kakao held a 55% stake prior to listing, with Ant Financial holding the balance 45% stake.</p></div><div><p>We have covered most aspects of the deal in our earlier notes:</p></div><div><ul style="list-style-type: disc;">
<li><a href="https://www.smartkarma.com/insights/kakao-pay-ipo-guided-by-ant-financial-to-be-a-mini-ant" target="_blank" rel="noopener">Kakao Pay IPO - Guided by Ant Financial to be a mini Ant,</a></li>
<li><a href="https://www.smartkarma.com/insights/kakao-pay-ipo-peer-comparison-local-and-international" target="_blank" rel="noopener">Kakao Pay IPO - Peer comparison - local and international, and</a></li>
</ul></div><div><ul style="list-style-type: disc;"><li><a href="https://www.smartkarma.com/insights/kakao-pay-ipo-valuation-and-likely-impact-of-latest-announcement" target="_blank" rel="noopener">Kakao Pay IPO - Valuation and Likely Impact of Latest Announcement</a></li></ul></div><ul><li><a href="https://www.smartkarma.com/insights/kakao-pay-ipo-low-end-still-appear-reasonable-but-stock-will-more-likely-be-driven-by-sentiment" target="_blank" rel="noopener">Kakao Pay IPO - Low-End Still Appear Reasonable but Stock Will More Likely Be Driven by Sentiment</a></li></ul><div><p>In this note we will compare KP with its sister company, Kakao Bank.</p></div>

Kakao Pay (KP), one of South Korea’s largest payment and financial services apps, aims to raise up to US$1.3bn in its South Korean IPO. Kakao held a 55% stake prior to listing, with Ant Financial holding the balance 45% stake.We have covered most aspects of the deal in our earlier notes:
Kakao Pay IPO - Guided by Ant Financial to be a mini Ant,
Kakao Pay IPO - Peer comparison - local and international, and
Kakao Pay IPO - Valuation and Likely Impact of Latest AnnouncementKakao Pay IPO - Low-End Still Appear Reasonable but Stock Will More Likely Be Driven by SentimentIn this note we will compare KP with its sister company, Kakao Bank.

Kakao Pay IPO - Comparison with Kakao Bank and an Alternate Look at Valuation

South Korea

Samsung Electronics Co., Ltd. manufactures a wide range of consumer and industrial electronic equipment and products such as semiconductors, personal computers, peripherals, monitors, televisions, and home appliances including air conditioners and microwave ovens. The Company also produces Internet access network systems and telecommunications equipment including mobile phones.

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Samsung Electronics (005930 KS)

Samsung Lee Family Inheritance Tax Payment Situation & Suggested Trading Positions

This post examines the latest situation of the Samsung founding family's inheritance tax payment and explores appropriate trading positions.

Sanghyun Park

Intel 3Q21: Delusions of a Madman

If one is an Intel investor today, you too need to have deep faith and believe that miracles are possible. Like believing Intel is poised to grow...

Aaron Gabin

Xiaomi (1810 HK): Weak Market in 3Q21 and Not Competitive Internationally

In 3Q21, the smartphone market was weak due to the chip shortage. Apple took back the No. 2 place from Xiaomi in market share. Xiaomi has tech and...

Ming Lu

Understanding Nanofilm (Nano SP)'s 3Cs - Customer Concentration, Competition and Management Changes

In its short listed history, Nanofilm endured significant regulator and investor scrutiny following sub-par results, management share disposals and...

Jason Yap, CFA

Kakao Pay IPO - Comparison with Kakao Bank and an Alternate Look at Valuation

Kakao Pay (KP), one of South Korea’s largest payment and financial services apps, aims to raise up to US$1.3bn in its South Korean IPO. In this...

Sumeet Singh

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