Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

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<p>It was reported in numerous Korean media that the Japanese government is planning to amend the law in the National Assembly so that it can provide subsidies worth several trillion won to major semiconductor players such as TSMC to build semiconductor plant in Japan.</p>
<p>The bill is expected to contain contents that mention that subsidies are necessary for national security in the chaos caused by the global semiconductor shortage. The purpose of this move is to increase semiconductor chip production amid global shortages and also increase jobs and investments in Japan. </p>
<p><strong>Overall, this major government subsidy to <a href="https://www.smartkarma.com/entities/taiwan-semiconductor-co-ltd" target="_blank" data-smartkarma-citation="entities:1248:1" rel="noopener">Taiwan Semiconductor Co. (5425 TT)</a> (TSMC) is likely to have a negative impact to <a href="https://www.smartkarma.com/entities/samsung-electronics-co-ltd" target="_blank" data-smartkarma-citation="entities:191:1" rel="noopener">Samsung Electronics (005930 KS)</a>.</strong> In the past several weeks, Samsung Electronics' share price has been relatively weak due to the concerns about the Lee family selling big stakes due to the need to pay for inheritance taxes. Now, this new legislation in Japan which could provide billions of dollars in subsidies to TSMC could further negatively impact Samsung Electronics' share price. </p>
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It was reported in numerous Korean media that the Japanese government is planning to amend the law in the National Assembly so that it can provide subsidies worth several trillion won to major semiconductor players such as TSMC to build semiconductor plant in Japan.
The bill is expected to contain contents that mention that subsidies are necessary for national security in the chaos caused by the global semiconductor shortage. The purpose of this move is to increase semiconductor chip production amid global shortages and also increase jobs and investments in Japan. 
Overall, this major government subsidy to Taiwan Semiconductor Co. (5425 TT) (TSMC) is likely to have a negative impact to Samsung Electronics (005930 KS). In the past several weeks, Samsung Electronics' share price has been relatively weak due to the concerns about the Lee family selling big stakes due to the need to pay for inheritance taxes. Now, this new legislation in Japan which could provide billions of dollars in subsidies to TSMC could further negatively impact Samsung Electronics' share price. 


Japanese Govt May Provide Several Trillion Won in Subsidy to TSMC To Build A Semicon Plant in Japan

Chart based progressive global trading strategies, Chart Partners

Thomas Schroeder

Chart based progressive global trading strategies

Chart Partners

Chart Partners objective is to discover medium-term cycle turns and profit opportunities before they unfold, within structural trends while preserving capital with clear degrees of risk. We have real return ideas. 

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Technical Analysis

<p>Kospi and SEC bear flags point lower with SEC the more compelling short. Korea conviction to buy near 380/75 ahead of a bigger short squeeze to clear the 400 barrier. Korea did meet our 400 PT for a fade back to the lows to re load.</p><p>Kospi RSI bull divergence to mature on next downside attempt.</p><p>SEC bear flag stands out (short).</p><p>Compelling pair is long Korea and short India.</p>

Kospi and SEC bear flags point lower with SEC the more compelling short. Korea conviction to buy near 380/75 ahead of a bigger short squeeze to clear the 400 barrier. Korea did meet our 400 PT for a fade back to the lows to re load.Kospi RSI bull divergence to mature on next downside attempt.SEC bear flag stands out (short).Compelling pair is long Korea and short India.

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

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.

Event-Driven

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<p>Kakao Bank's three month lock-up will end on 6th Nov 2021, freeing up another US$1bn worth of shares held by <a href="https://www.smartkarma.com/entities/netmarble-corporation" target="_blank" data-smartkarma-citation="entities:22839:1" rel="noopener">Netmarble Corporation (251270 KS)</a>, <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a> and local investors.</p>
<p>We have covered various aspects of the deal in our previous notes:</p>
</div>
<div>
<ul style="list-style-type: disc;">
<li>
<a href="https://www.smartkarma.com/insights/kakao-bank-ipo-riding-on-parent-s-network-but-boundaries-with-kakao-pay-remain-unclear" target="_blank" rel="noopener">Kakao Bank IPO - Riding on parents network but boundaries with Kakao Pay remain unclear</a>, </li>
<li><a href="https://www.smartkarma.com/insights/kakao-bank-ipo-pricey-as-it-should-be" target="_blank" rel="noopener">Kakao Bank IPO - Pricey as It Should Be</a></li>
<li><a href="https://www.smartkarma.com/insights/kakao-bank-ipo-lack-of-lock-up-and-msci-ftse-index-implications" target="_blank" rel="noopener">Kakao Bank IPO - Lack of Lock-Up and MSCI, FTSE Index Implications, and</a></li>
<li><a href="https://www.smartkarma.com/insights/kakao-bank-ipo-trading-one-for-instis-closer-look-at-ftse-and-msci-inclusion-remain-buyers" target="_blank" rel="noopener">Kakao Bank IPO Trading - One for Instis, Closer Look at FTSE and MSCI Inclusion. Remain Buyers</a></li>
<li><a href="https://www.smartkarma.com/insights/kakao-bank-msci-done-missed-ftse-by-a-whisker" target="_blank" rel="noopener">Kakao Bank - MSCI Done, Missed FTSE by a Whisker</a></li>
<li><a href="https://www.smartkarma.com/insights/kakao-bank-placement-its-expensive-but-the-discount-is-enticing" target="_blank" rel="noopener">Kakao Bank Placement - Its Expensive but the Discount Is Enticing</a></li>
</ul>
</div>
<div>
<p>In this note, we will talk about the upcoming lock-up expiry.</p>
</div>


Kakao Bank's three month lock-up will end on 6th Nov 2021, freeing up another US$1bn worth of shares held by Netmarble Corporation (251270 KS), Tencent (700 HK) and local investors.
We have covered various aspects of the deal in our previous notes:




Kakao Bank IPO - Riding on parents network but boundaries with Kakao Pay remain unclear, 
Kakao Bank IPO - Pricey as It Should Be
Kakao Bank IPO - Lack of Lock-Up and MSCI, FTSE Index Implications, and
Kakao Bank IPO Trading - One for Instis, Closer Look at FTSE and MSCI Inclusion. Remain Buyers
Kakao Bank - MSCI Done, Missed FTSE by a Whisker
Kakao Bank Placement - Its Expensive but the Discount Is Enticing



In this note, we will talk about the upcoming lock-up expiry.


Kakao Bank Lock-Up - Watch Out for Netmarble Led Blocks

Equity Capital Markets

<div><p>Kakao Pay (KP), one of South Korea’s largest payment and financial services apps, raised 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><div><ul style="list-style-type: disc;">
<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>
<li><a href="https://www.smartkarma.com/insights/kakao-pay-ipo-comparison-with-kakao-bank-and-an-alternate-look-at-valuation" target="_blank" rel="noopener">Kakao Pay IPO - Comparison with Kakao Bank and an Alternate Look at Valuation</a></li>
</ul></div><p>In this note, we will talk about the deal's trading dynamics.</p>

Kakao Pay (KP), one of South Korea’s largest payment and financial services apps, raised 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 Announcement
Kakao Pay IPO - Low-End Still Appear Reasonable but Stock Will More Likely Be Driven by Sentiment
Kakao Pay IPO - Comparison with Kakao Bank and an Alternate Look at Valuation
In this note, we will talk about the deal's trading dynamics.

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.

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

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.

Samsung Electronics Pref Shares (005935 KS)

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Samsung Electronics Pref Shares (005935 KS)

Japanese Govt May Provide Several Trillion Won in Subsidy to TSMC To Build A Semicon Plant in Japan

The Japanese government is planning to amend the law so that it can provide subsidies worth several trillion won to major semiconductor players...

Douglas Kim

SEC Bear Flag and Kospi Re Load Zone

Kospi and SEC bear flags point lower with SEC the more compelling short. Korea conviction to buy near 380/75 ahead of a bigger short squeeze to...

Thomas Schroeder

Kakao Bank Lock-Up - Watch Out for Netmarble Led Blocks

Kakao Bank's three month lock-up will end on 6th Nov 2021, freeing up another US$1bn worth of shares held by Netmarble Corporation (251270 KS),...

Sumeet Singh

Kakao Pay IPO Trading - Won't Be Chasing

Kakao Pay, one of South Korea’s largest payment and financial services apps, raised around US$1.3bn in its South Korean IPO. Kakao held a 55% stake...

Sumeet Singh

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

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