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 rebalancing implementation of the FnGuide Secondary Battery Index will be on December 13. So, the ETF operator's rebalancing trading will take place at the close on December 10.</li>
<li>Among the stocks to which the ceiling is applied, the stocks with a relatively sizeable passive impact (at the current prices) are <strong>SK Innovation, Ecopro BM, and Posco Chemical</strong>.</li>
<li>Among the companies that have been listed since June, the companies that directly operate the rechargeable battery business are the following three: <strong>Enchem</strong>, GI Tech, and Onejoon.</li>
</ul>


The rebalancing implementation of the FnGuide Secondary Battery Index will be on December 13. So, the ETF operator's rebalancing trading will take place at the close on December 10.
Among the stocks to which the ceiling is applied, the stocks with a relatively sizeable passive impact (at the current prices) are SK Innovation, Ecopro BM, and Posco Chemical.
Among the companies that have been listed since June, the companies that directly operate the rechargeable battery business are the following three: Enchem, GI Tech, and Onejoon.


FnGuide Secondary Battery Index Rebalancing Preview in December: Watch Enchem

<p>The Ecopro tender spread is still compressed at the 2% level. The current arb yield stands at 2.54% at the last close. </p><table class="table table-striped">
<colgroup>
<col width="200">
<col width="200">
<col width="200">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap gain"}'>Swap gain</td>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"Ecopro Co., Ltd."}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula="=Terms!R[-10]C[0]">Ecopro Co., Ltd.</td>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"Ecopro HN Co Ltd"}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula="=Terms!R[-6]C[-1]">Ecopro HN Co Ltd</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Ticker"}'>Ticker</td>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"086520"}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula="=Terms!R[-10]C[0]">086520</td>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"383310"}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula="=Terms!R[-6]C[-1]">383310</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Current price"}'>Current price</td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":98400}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula='=googlefinance(Terms!R[-11]C[0], "price")'>₩98,400</td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":111100}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula='=googlefinance(Terms!R[-7]C[-1], "price")'>₩111,100</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap price"}'>Swap price</td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":95441}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula="=Terms!R[-10]C[0]">₩95,441</td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":110500}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula="=Terms!R[-6]C[-1]">₩110,500</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap ratio"}'>Swap ratio</td>
<td colspan="2" rowspan="1" style="text-align: center;" data-sheets-value='{"1":3,"3":1.157783342588615}' data-sheets-numberformat='{"1":2,"2":"#,##0.0000000","3":1}' data-sheets-formula="=R[-1]C[1]/R[-1]C[0]">1.1577833</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Price for 100 shares of the target company"}'>Price for 100 shares of the target company</td>
<td colspan="2" rowspan="1" style="text-align: center;" data-sheets-value='{"1":3,"3":11110000}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula="=R[-3]C[1]*100">₩11,110,000</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Number of new shares of the acquiring company"}'>Number of new shares of the acquiring company</td>
<td colspan="2" rowspan="1" style="text-align: center;" data-sheets-value='{"1":3,"3":115.7783342588615}' data-sheets-numberformat='{"1":2,"2":"#,##0.0000000","3":1}' data-sheets-formula="=100*R[-2]C[0]">115.7783343</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Value of the new shares at the current price"}'>Value of the new shares at the current price</td>
<td colspan="2" rowspan="1" style="text-align: center;" data-sheets-value='{"1":3,"3":11392588.091071973}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula="=R[-1]C[0]*R[-5]C[0]">₩11,392,588</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap gain"}'>Swap gain</td>
<td colspan="2" rowspan="1" style="text-align: center;" data-sheets-value='{"1":3,"3":0.0254354717436519}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=(R[-1]C[0]-R[-3]C[0])/R[-3]C[0]">2.54%</td>
</tr>
<tr><td colspan="3" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART &amp; KRX"}'>Source: DART &amp; KRX</td></tr>
</tbody>
</table><p>The spread has not exceeded 3% since October 8, when short-selling restrictions were lifted and arb trading became possible.</p><div class="content-highlight"><p><strong>The main reason the spread is not widening is that the share price of Ecopro HN has risen, which paradoxically shows that short-term purchases for arb trading are influencing it strongly.</strong></p></div><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/236/519/original/image_27181164221634749642433.png?1634749643" class="editor-image img-responsive" data-smartkarma-image-id="236519"></figure><hr><p><strong>This tender event is briefly summarized as follows:</strong></p><ul>
<li>Acquirer: Ecopro Co., Ltd.</li>
<li>Stocks subject to purchase: Ecopro HN registered common stock (6,121,973 shares)</li>
<li>Payment method: Grant of new common stock of Ecopro Co., Ltd. (cash payment for fraction stocks)</li>
<li>Tendering period: October 13 ~ November 1, 2021</li>
<li>Tendering price: ₩110,500 per share</li>
<li>Ecopro Co., Ltd. issuance price of new shares: ₩95,441 per share</li>
<li>Stock exchange ratio: 1.1577833 (Ecopro 1.1577833 shares exchanged per 1 Ecopro HN share)</li>
<li>Stock settlement date and cash payment date (for fractional shares): November 4, 2021</li>
<li>Listing date: November 19, 2021</li>
<li>Subscription channel: must physically visit a Daishin Securities branch (+82 1588-4488)</li>
</ul><hr><p>The most active arb-trading institutional investors in stock swap events in the Korean local market are local brokerages/investment advisories. Since October 8, they have significantly increased their stock purchases of Ecopro HN. In other words, this proves that a significant level of arb trading is taking place in this event.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/236/527/original/Screen+Shot+2021-10-20+at+4.30.59+PM.png?1634761895" class="editor-image img-responsive" data-smartkarma-image-id="236527"></figure><p>Short-selling on Ecopro Co., Ltd. also increased significantly from October 8. For reference, October 12 was the day when Ecopro Co was shorting-restricted. By the way, we see a significant discrepancy on October 8 between local brokerages/investment advisories' net buying of Ecopro HN and the short-selling on Ecopro Co. It seems to be because those investors had bought Ecopro HN during the short-selling ban period short-sold Ecopro Co., Ltd on this day.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/236/535/original/Screen+Shot+2021-10-20+at+4.31.17+PM.png?1634765907" class="editor-image img-responsive" data-smartkarma-image-id="236535"></figure></section>

The Ecopro tender spread is still compressed at the 2% level. The current arb yield stands at 2.54% at the last close. 







Swap gain
Ecopro Co., Ltd.
Ecopro HN Co Ltd


Ticker
086520
383310


Current price
₩98,400
₩111,100


Swap price
₩95,441
₩110,500


Swap ratio
1.1577833


Price for 100 shares of the target company
₩11,110,000


Number of new shares of the acquiring company
115.7783343


Value of the new shares at the current price
₩11,392,588


Swap gain
2.54%

Source: DART &amp; KRX

The spread has not exceeded 3% since October 8, when short-selling restrictions were lifted and arb trading became possible.The main reason the spread is not widening is that the share price of Ecopro HN has risen, which paradoxically shows that short-term purchases for arb trading are influencing it strongly.This tender event is briefly summarized as follows:
Acquirer: Ecopro Co., Ltd.
Stocks subject to purchase: Ecopro HN registered common stock (6,121,973 shares)
Payment method: Grant of new common stock of Ecopro Co., Ltd. (cash payment for fraction stocks)
Tendering period: October 13 ~ November 1, 2021
Tendering price: ₩110,500 per share
Ecopro Co., Ltd. issuance price of new shares: ₩95,441 per share
Stock exchange ratio: 1.1577833 (Ecopro 1.1577833 shares exchanged per 1 Ecopro HN share)
Stock settlement date and cash payment date (for fractional shares): November 4, 2021
Listing date: November 19, 2021
Subscription channel: must physically visit a Daishin Securities branch (+82 1588-4488)
The most active arb-trading institutional investors in stock swap events in the Korean local market are local brokerages/investment advisories. Since October 8, they have significantly increased their stock purchases of Ecopro HN. In other words, this proves that a significant level of arb trading is taking place in this event.Short-selling on Ecopro Co., Ltd. also increased significantly from October 8. For reference, October 12 was the day when Ecopro Co was shorting-restricted. By the way, we see a significant discrepancy on October 8 between local brokerages/investment advisories' net buying of Ecopro HN and the short-selling on Ecopro Co. It seems to be because those investors had bought Ecopro HN during the short-selling ban period short-sold Ecopro Co., Ltd on this day.

Ecopro Tender Event: Pro-Ration Risk Analysis & Arb Spread Widening Possibilities

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

<p>Ecopro Co Ltd (086520 KS) announced after the market close on September 6th that it will conduct a rights offering worth 676 billion won, representing 37% of market cap. The company will issue 6.37 million new shares (representing 34% of its existing outstanding shares) and the rights offering price is 106,172 won per share, representing 9.1% premium to the current price.</p><p>The following are the key dates of the rights offering:</p><ul>
<li>Subscription expected dates - 13 October to 1 November</li>
<li>Rights offering subscription payments required - 4 November</li>
<li>Rights offering new shares listing - 19 November</li>
</ul><p>Ecopro Co will use the proceeds from the rights offering to purchase 6.12 million shares of Ecopro HN at 110,500 won (2% premium to current price) which total 676 billion won. Ecopro HN has 15.3 million shares outstanding so 6.12 million shares to be purchased in the tender offer would be 40% of outstanding shares. </p><div class="content-highlight"><p>Despite the opportunity to purchase an increasing stake in Ecopro HN, this will result in a significant shares dilution for the existing shareholders of Ecopro Co which is a big negative. Many investors will be concerned about Ecopro Co purchasing a large stake of Ecopro HN, especially after a steep increase in the latter company's stock price in the past three months. As a result, we have a Negative view of Ecopro Co at current levels. </p></div>

Ecopro Co Ltd (086520 KS) announced after the market close on September 6th that it will conduct a rights offering worth 676 billion won, representing 37% of market cap. The company will issue 6.37 million new shares (representing 34% of its existing outstanding shares) and the rights offering price is 106,172 won per share, representing 9.1% premium to the current price.The following are the key dates of the rights offering:
Subscription expected dates - 13 October to 1 November
Rights offering subscription payments required - 4 November
Rights offering new shares listing - 19 November
Ecopro Co will use the proceeds from the rights offering to purchase 6.12 million shares of Ecopro HN at 110,500 won (2% premium to current price) which total 676 billion won. Ecopro HN has 15.3 million shares outstanding so 6.12 million shares to be purchased in the tender offer would be 40% of outstanding shares. Despite the opportunity to purchase an increasing stake in Ecopro HN, this will result in a significant shares dilution for the existing shareholders of Ecopro Co which is a big negative. Many investors will be concerned about Ecopro Co purchasing a large stake of Ecopro HN, especially after a steep increase in the latter company's stock price in the past three months. As a result, we have a Negative view of Ecopro Co at current levels. 

Ecopro Co Announces A Rights Offering Worth 676 Billion Won (37% of Market Cap)

Equity Bottom-Up

<p>In this insight, we provide visual set-ups of the Korean stubs related pair-trades. We have included 40 pair trade set-ups of all the major Korean stubs related pairs (including regular and quasi holdcos and their respective opcos). We have provided YTD price chart comparisons of all the 40 pair trade set-ups below. </p><p>The <strong>top six best performing holdcos</strong> (among the companies listed below) YTD are as follows:</p><ul>
<li>
<a href="https://www.smartkarma.com/entities/doosan-co-ltd" target="_blank" data-smartkarma-citation="entities:7423:1" rel="noopener">Doosan Corp (000150 KS)</a> - up 86% YTD</li>
<li>
<a href="https://www.smartkarma.com/entities/hyosung-corporation" target="_blank" data-smartkarma-citation="entities:20712:1" rel="noopener">Hyosung Corporation (004800 KS)</a> - Up 62.5% YTD</li>
<li>
<a href="https://www.smartkarma.com/entities/poongsan-corp" target="_blank" data-smartkarma-citation="entities:16504:1" rel="noopener">Poongsan Corp (103140 KS)</a> - Up 50.3% YTD</li>
<li>
<a href="https://www.smartkarma.com/entities/samyang-holdings-corp" target="_blank" data-smartkarma-citation="entities:13761:1" rel="noopener">Samyang Holdings (000070 KS)</a> - Up 47.7% YTD</li>
<li>
<a href="https://www.smartkarma.com/entities/ecopro-co-ltd" target="_blank" data-smartkarma-citation="entities:19029:1" rel="noopener">Ecopro Co Ltd (086520 KS)</a> - Up 34.8% YTD</li>
<li>
<a href="https://www.smartkarma.com/entities/orion-corp" target="_blank" data-smartkarma-citation="entities:7615:1" rel="noopener">Orion Holdings (001800 KS)</a> - Up 30.2% YTD</li>
</ul><p>The <strong>top six best performing opcos</strong> (among the companies listed below) YTD are as follows:</p><ul>
<li>
<a href="https://www.smartkarma.com/entities/hanwha-aerospace-co-ltd" target="_blank" data-smartkarma-citation="entities:504:1" rel="noopener">Hanwha Aerospace (012450 KS)</a> - Up 73.8% YTD</li>
<li>
<a href="https://www.smartkarma.com/entities/doosan-heavy-industries-construction" target="_blank" data-smartkarma-citation="entities:7389:1" rel="noopener">Doosan Heavy Industries &amp; Construction (034020 KS)</a> - Up 56.5% YTD</li>
<li>
<a href="https://www.smartkarma.com/entities/ecopro-bm-co-ltd" target="_blank" data-smartkarma-citation="entities:27873:1" rel="noopener">Ecopro BM Co Ltd (247540 KS)</a> - 54.7% YTD</li>
<li>Aekyung Petrochem - Up 47.2% YTD</li>
<li>
<a href="https://www.smartkarma.com/entities/pan-ocean-co-ltd" target="_blank" data-smartkarma-citation="entities:5279:1" rel="noopener">Pan Ocean (028670 KS)</a> - Up 40.6% YTD</li>
<li>
<a href="https://www.smartkarma.com/entities/poongsan-corp" target="_blank" data-smartkarma-citation="entities:16504:1" rel="noopener">Poongsan Corp (103140 KS)</a> - Up 36.7% YTD</li>
</ul>

In this insight, we provide visual set-ups of the Korean stubs related pair-trades. We have included 40 pair trade set-ups of all the major Korean stubs related pairs (including regular and quasi holdcos and their respective opcos). We have provided YTD price chart comparisons of all the 40 pair trade set-ups below. The top six best performing holdcos (among the companies listed below) YTD are as follows:

Doosan Corp (000150 KS) - up 86% YTD

Hyosung Corporation (004800 KS) - Up 62.5% YTD

Poongsan Corp (103140 KS) - Up 50.3% YTD

Samyang Holdings (000070 KS) - Up 47.7% YTD

Ecopro Co Ltd (086520 KS) - Up 34.8% YTD

Orion Holdings (001800 KS) - Up 30.2% YTD
The top six best performing opcos (among the companies listed below) YTD are as follows:

Hanwha Aerospace (012450 KS) - Up 73.8% YTD

Doosan Heavy Industries &amp; Construction (034020 KS) - Up 56.5% YTD

Ecopro BM Co Ltd (247540 KS) - 54.7% YTD
Aekyung Petrochem - Up 47.2% YTD

Pan Ocean (028670 KS) - Up 40.6% YTD

Poongsan Corp (103140 KS) - Up 36.7% YTD


Pair Trade Setups of Korean Holdcos & Opcos

Equity Capital Markets

<div class="content-highlight">
<p>Iljin Hysolus reduced its IPO price range. The company announced that it will reduce the IPO price range from 30,300 won to 37,300 won previously to 25,700 won to 34,300 won, respectively. This represents a decline of 8% to 15%.</p>
<p>The IPO deal size has been revised down to US$243 million to US$325 million. The expected market cap after the IPO is from 933 billion won (low) to 1,245 billion won (high). The book building for the institutional investors starts on 19 August 2021. </p>
<p><strong>Our revised base case valuation of Iljin Hysolus is implied market cap of 940 billion won or 25,898 won per share, which represents 1% higher than the low end of the IPO price range of 25,700 won. Given the lack of upside, we continue to maintain a NEGATIVE view of this IPO and we would avoid this IPO. </strong></p>
</div><table class="table table-striped">
<colgroup>
<col>
<col>
</colgroup>
<tbody>
<tr>
<td style="width: 240pt;">Deal Specifics of the Iljin Hysolus IPO (Revised):</td>
<td style="width: 238pt;"> </td>
</tr>
<tr>
<td style="width: 240pt;">Lead underwriters of the IPO: </td>
<td style="width: 238pt;">Mirae Asset Securities, Samsung Securities</td>
</tr>
<tr>
<td style="width: 240pt;">Expected IPO price per share: </td>
<td style="width: 238pt;">25,700 won (low)/34,300 won (high)</td>
</tr>
<tr>
<td style="width: 240pt;">Number of Shares for IPO:</td>
<td style="width: 238pt;">10.89m shares (7.26m new shares and 3.63m old shares)</td>
</tr>
<tr>
<td style="width: 240pt;">IPO base deal size: </td>
<td style="width: 238pt;">US$243 mn (low);  US$325 mn (high)</td>
</tr>
<tr>
<td style="width: 240pt;">Expected common shares outstanding, fully diluted (post-IPO):  </td>
<td style="width: 238pt;">36.31m shares</td>
</tr>
<tr>
<td style="width: 240pt;">Expected market cap after IPO:</td>
<td style="width: 238pt;">933 billion won (low)/1,245 billion won (high)</td>
</tr>
<tr>
<td style="width: 240pt;">Book open: </td>
<td style="text-align: left; width: 238pt;">19-Aug-21</td>
</tr>
<tr>
<td style="width: 240pt;">Book closed:</td>
<td style="text-align: left; width: 238pt;">20-Aug-21</td>
</tr>
<tr>
<td style="width: 240pt;">Listing date: </td>
<td style="text-align: left; width: 238pt;">TBD</td>
</tr>
<tr>
<td style="width: 240pt;">Source: Company data</td>
<td style="width: 238pt;"> </td>
</tr>
</tbody>
</table>


Iljin Hysolus reduced its IPO price range. The company announced that it will reduce the IPO price range from 30,300 won to 37,300 won previously to 25,700 won to 34,300 won, respectively. This represents a decline of 8% to 15%.
The IPO deal size has been revised down to US$243 million to US$325 million. The expected market cap after the IPO is from 933 billion won (low) to 1,245 billion won (high). The book building for the institutional investors starts on 19 August 2021. 
Our revised base case valuation of Iljin Hysolus is implied market cap of 940 billion won or 25,898 won per share, which represents 1% higher than the low end of the IPO price range of 25,700 won. Given the lack of upside, we continue to maintain a NEGATIVE view of this IPO and we would avoid this IPO. 







Deal Specifics of the Iljin Hysolus IPO (Revised):
 


Lead underwriters of the IPO: 
Mirae Asset Securities, Samsung Securities


Expected IPO price per share: 
25,700 won (low)/34,300 won (high)


Number of Shares for IPO:
10.89m shares (7.26m new shares and 3.63m old shares)


IPO base deal size: 
US$243 mn (low);  US$325 mn (high)


Expected common shares outstanding, fully diluted (post-IPO):  
36.31m shares


Expected market cap after IPO:
933 billion won (low)/1,245 billion won (high)


Book open: 
19-Aug-21


Book closed:
20-Aug-21


Listing date: 
TBD


Source: Company data
 




South Korea

Ecopro BM Co.,Ltd develops and manufactures advanced materials. The Company produces and sells high-nickel cathode materials and other products. Ecopro BM markets its products throughout Korea.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Ecopro BM (247540 KS)

FnGuide Secondary Battery Index Rebalancing Preview in December: Watch Enchem

The FnGuide Secondary Battery Index (KODEX ETF) rebalancing in December is expected to see several names with a sizeable passive impact.

Sanghyun Park

Ecopro Tender Event: Pro-Ration Risk Analysis & Arb Spread Widening Possibilities

This post analyzes the pro-ration risk and examines the arb spread widening possibilities in the Ecopro tender offer event.

Sanghyun Park

Ecopro Co Announces A Rights Offering Worth 676 Billion Won (37% of Market Cap)

Ecopro Co announced on September 6th that it will conduct a rights offering worth 676 billion won, representing 37% of market cap. We believe this...

Douglas Kim

Pair Trade Setups of Korean Holdcos & Opcos

In this insight, we provide visual set-ups of the Korean stubs related pair-trades. We have included 40 pair trade set-ups of all the major Korean...

Douglas Kim

Iljin Hysolus Reduces IPO Price Range

Iljin Hysolus reduced its IPO price range. The company announced that it will reduce the IPO price range to 25,700 won to 34,300 won. We continue...

Douglas Kim

Price Gauge

52-week Range

Market Cap (USDm)

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