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

<p>A fairly interesting path to the growth strategy of SK Group, with SK Holdings at the center, spread in the local market this morning. The core of this strategic path is to maximize valuation by separating the business divisions owned by SK Holdings' direct subsidiaries and listing them separately.</p><p>This is a part of the so-called SK Financial Story strategy that SK Holdings recently unveiled extensively. Through this, SK Holdings plans to increase its valuation nearly tenfold by 2025.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/226/830/original/5.png?1630290296" class="editor-image img-responsive" data-smartkarma-image-id="226830"></figure></section><div class="content-caption">(Courtesy SK Holdings)</div><div class="content-highlight"><p><em>The full version of this SK Financial Story presentation is attached below in this insight.</em></p></div><p>This strategic path was made clear by the merger of SK Holdings and SK Materials. Therefore, the SK Holdings/SK Materials merger is just the beginning, and that a similar merger will continue is spreading in the local market today.</p><p><strong>So who will be the next target?</strong></p><p>The answer to this? Well, we can find the answer from today's stock prices. Among SK affiliates, <a href="https://www.smartkarma.com/entities/skc-co-ltd" target="_blank" data-smartkarma-citation="entities:3970:1" rel="noopener">SKC Co Ltd (011790 KS)</a> is showing the largest share price movement. As of now (11:30 am local time), SKC is down more than 5%. This is because concerns are rapidly growing in the market that SKC will become the next affiliate to merge with SK Holdings.</p><ul>
<li><strong>SKC will pursue a physical division in the same way as SK Materials, and a newly created operating company will be listed separately, aiming for a significant valuation re-rating.</strong></li>
<li><strong>After SKC, SK Siltron, an unlisted company, will be the next target. This is a scenario where SK Siltron merges with SK Materials' newly created operating company and goes public. Similarly, this newly combined company will again aim for a substantial valuation re-rating. </strong></li>
</ul>

A fairly interesting path to the growth strategy of SK Group, with SK Holdings at the center, spread in the local market this morning. The core of this strategic path is to maximize valuation by separating the business divisions owned by SK Holdings' direct subsidiaries and listing them separately.This is a part of the so-called SK Financial Story strategy that SK Holdings recently unveiled extensively. Through this, SK Holdings plans to increase its valuation nearly tenfold by 2025.(Courtesy SK Holdings)The full version of this SK Financial Story presentation is attached below in this insight.This strategic path was made clear by the merger of SK Holdings and SK Materials. Therefore, the SK Holdings/SK Materials merger is just the beginning, and that a similar merger will continue is spreading in the local market today.So who will be the next target?The answer to this? Well, we can find the answer from today's stock prices. Among SK affiliates, SKC Co Ltd (011790 KS) is showing the largest share price movement. As of now (11:30 am local time), SKC is down more than 5%. This is because concerns are rapidly growing in the market that SKC will become the next affiliate to merge with SK Holdings.
SKC will pursue a physical division in the same way as SK Materials, and a newly created operating company will be listed separately, aiming for a significant valuation re-rating.
After SKC, SK Siltron, an unlisted company, will be the next target. This is a scenario where SK Siltron merges with SK Materials' newly created operating company and goes public. Similarly, this newly combined company will again aim for a substantial valuation re-rating. 


SKC Is Down 5% Today: Why & What Impact on SK Holdings/SK Materials Arb Spread-Hunting

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Last Week in Event SPACE: Sembcorp, CK Hutch, Prosus/Naspers, Z Energy, Milton, China Logistics

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

<div class="content-highlight">
<h2>Conclusion</h2>
<p>We believe that this merger between SK Inc and SK Materials Holdings is likely to get completed. The long term benefit should be higher for SK Inc as it removes the holdco discount associated with its stake in SK Materials and is able to absorb the company without too much dilution.</p>
<p>In addition, in the next 3-5 years, there will likely be more speculation about an eventual merger between SK Inc and SK Square but that will likely require SK Inc raising its value much higher than current levels. Overall, we continue to have a POSITIVE view of SK Inc. </p>
<p>Both SK Square and SK Inc (post merger with SK Materials), will invest in the various segments of the global semiconductor value chain. SK Inc has mentioned that it plans to focus on investing in four main strategic sectors including new materials, bio, green and digital. <span>As both companies will be involved in investing in the various segments of the global semiconductor sector, there will likely be some overlaps in their investment operations. </span><span>As such, there could be some long-term benefits of merging SK Inc and SK Square. </span></p>
</div>


Conclusion
We believe that this merger between SK Inc and SK Materials Holdings is likely to get completed. The long term benefit should be higher for SK Inc as it removes the holdco discount associated with its stake in SK Materials and is able to absorb the company without too much dilution.
In addition, in the next 3-5 years, there will likely be more speculation about an eventual merger between SK Inc and SK Square but that will likely require SK Inc raising its value much higher than current levels. Overall, we continue to have a POSITIVE view of SK Inc. 
Both SK Square and SK Inc (post merger with SK Materials), will invest in the various segments of the global semiconductor value chain. SK Inc has mentioned that it plans to focus on investing in four main strategic sectors including new materials, bio, green and digital. As both companies will be involved in investing in the various segments of the global semiconductor sector, there will likely be some overlaps in their investment operations. As such, there could be some long-term benefits of merging SK Inc and SK Square. 


Merger of SK Inc & SK Materials Holdings: A Prelude to An Eventual Merger with SK Square?

<h2>Event overview</h2><p>We have another stock swap event in Korea. SK Inc (SK Holdings) merges with SK Materials. SK Inc will be a surviving entity, and SK Materials will be dissolved. <strong>So yes, this is a nearly pure arb opportunity. I need to stress the word "Nearly" here, meaning that it isn't a 100% risk-free arb. But the only risk here is cancellation, which will be triggered by the stock purchase ceiling amount of ₩800.0B.</strong></p><table class="table table-striped">
<colgroup>
<col width="200">
<col width="200">
</colgroup>
<tbody>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Swap overview"}'>Swap overview</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Type"}'>Type</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Stock swap"}'>Stock swap</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Acquirer"}'>Acquirer</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SK Inc"}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'><a href="https://www.smartkarma.com/entities/sk-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:393:1" rel="noopener">SK Inc (034730 KS)</a></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Target company"}'>Target company</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SK Materials Co Ltd"}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'><a href="https://www.smartkarma.com/entities/oci-materials-co-ltd" target="_blank" data-smartkarma-citation="entities:19390:1" rel="noopener">SK Materials (036490 KS)</a></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap price for SK Inc"}' data-sheets-formula='="Swap price for "&amp;R[-6]C[1]'><strong>Swap price for SK Inc</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":264076}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}'><strong>₩264,076</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap price for SK Materials Co Ltd"}' data-sheets-formula='="Swap price for "&amp;R[-4]C[1]'><strong>Swap price for SK Materials</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":416670}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}'><strong>₩416,670</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap ratio"}'><strong>Swap ratio</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1.5778412}' data-sheets-numberformat='{"1":2,"2":"#,##0.0000000","3":1}'><strong>1.5778412</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Amount"}'><strong>Stock purchase ceiling amount</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":800}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'><strong>₩0.80T</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Exercise price - SK Inc"}' data-sheets-formula='="Exercise price - "&amp;R[-11]C[1]'>Exercise price - SK Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"N/A"}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}'>N/A</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Exercise price - SK Materials Co Ltd"}' data-sheets-formula='="Exercise price - "&amp;R[-9]C[1]'><strong>Exercise price - SK Materials</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":415751}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}'><strong>₩415,751</strong></td>
</tr>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><p>Below are the swap price calculations for both companies, giving a swap ratio of 1 to 1.5778412. That is, <strong>SK Materials shareholders will receive 1.5778412 shares of SK Inc for each of their SK Materials share.</strong></p><table class="table table-striped">
<colgroup>
<col width="300">
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap prices"}'>Swap prices</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SK Inc"}' data-sheets-formula="=Terms!R[2]C[0]">SK Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SK Materials Co Ltd"}' data-sheets-formula="=Terms!R[5]C[-1]">SK Materials</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Note"}'>Note</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"1-month VWAP (July 20~August 19, 2021)"}'>1-month VWAP (July 20~August 19, 2021)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":270513}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩270,513</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":425992}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩425,992</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"A"}'>A</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"1-week VWAP (August 13~19, 2021)"}'>1-week VWAP (August 13~19, 2021)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":262714}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩262,714</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":420319}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩420,319</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"B"}'>B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"1-day close (August 19, 2021)"}'>1-day close (August 19, 2021)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":259000}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩259,000</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":403700}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩403,700</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"C"}'>C</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap price"}'><strong>Swap price</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":264075.6666666667}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=sum(R[-3]C[0]:R[-1]C[0])/3"><strong>₩264,076</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":416670.3333333333}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=sum(R[-3]C[0]:R[-1]C[0])/3"><strong>₩416,670</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"(A+B+C)/3"}'><strong>(A+B+C)/3</strong></td>
</tr>
<tr><td colspan="4" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART &amp; KRX"}'>Source: DART &amp; KRX</td></tr>
</tbody>
</table><p><strong>This event qualified as a small-scale merger.</strong> It means that the number of newly issued shares being transferred in a merger is less than the 10% threshold of the total issued shares.</p><table class="table table-striped">
<colgroup>
<col width="200">
<col width="200">
</colgroup>
<tbody>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Small scale merger qualification"}'>Small scale merger qualification</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"NPS + Minority shareholders"}'><strong>SK Materials target shares: NPS + Minority shareholders</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.3581000000000001}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=sum(R[-8]C[1]:R[-7]C[1])"><strong>35.81%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Number of shares to swap"}'>Number of shares to swap</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":3776936}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula="=R[-35]C[0]-5179535-1202-1590000">3,776,936</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap ratio"}'>Swap ratio</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1.5778412}' data-sheets-numberformat='{"1":2,"2":"#,##0.0000000","3":1}' data-sheets-formula="=R[-33]C[0]">1.5778412</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Number of shares to be issued"}'><strong>Number of shares to be issued by SK Inc</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":5962879}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'><strong>5,962,879</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - % of SK Inc SO"}'><strong>- % of SK Inc SO</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.08474778041371826}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=R[-1]C[0]/R[-41]C[0]"><strong>8.47% (less than the 10% threshold)</strong></td>
</tr>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><div><div class="content-highlight">
<p><strong>Here are the benefits of a small-scale merger:</strong></p>
<ul>
<li>An acquiring entity (SK Inc) doesn't need shareholder approval, meaning that SK Inc shareholders won't be granted appraisal rights.</li>
<li>Only an acquired entity (SK Materials) needs shareholder approval, meaning that SK Materials shareholders get appraisal rights.</li>
<li>But SK Inc shareholders still get a right to oppose to this merger. If more than 20% of the shareholders oppose, an acquiring company should cancel the merger.</li>
</ul>
</div></div><p>This is the appraisal rights exercise price for SK Materials. As mentioned right above, SK Inc shareholders are not granted stock purchase rights.</p><table class="table table-striped">
<colgroup>
<col width="300">
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Stock purchase rights"}'>Stock purchase rights</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SK Inc"}' data-sheets-formula="=Terms!R[-5]C[0]">SK Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SK Materials Co Ltd"}' data-sheets-formula="=Terms!R[-2]C[-1]">SK Materials</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Note"}'>Note</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"2-month VWAP (June 20~August 19, 2021)"}'>2-month VWAP (June 20~August 19, 2021)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"-"}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>-</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":400942}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=(R[3]C[0]*3)-sum(R[1]C[0]:R[2]C[0])">₩400,942</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"A"}'>A</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"1-month VWAP (July 20~August 19, 2021)"}'>1-month VWAP (July 20~August 19, 2021)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"-"}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>-</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":425992}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩425,992</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"B"}'>B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"1-week VWAP (August 13~19, 2021)"}'>1-week VWAP (August 13~19, 2021)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"-"}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>-</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":420319}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩420,319</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"C"}'>C</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Exercise price"}'><strong>Exercise price</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"-"}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'><strong>-</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":415751}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'><strong>₩415,751</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"(A+B+C)/3"}'><strong>(A+B+C)/3</strong></td>
</tr>
<tr><td colspan="4" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART &amp; KRX"}'>Source: DART &amp; KRX</td></tr>
</tbody>
</table><p><strong>Below is the schedule. And the most important part is that we need to buy SK Materials shares until next Monday (August 23) to become eligible to exercise appraisal rights.</strong> It is important to note that the ex-rights date isn't the deadline for the stock purchase rights eligibility. The ex-rights date in this event is the deadline to become eligible to oppose to the merger.</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":"Schedule"}' data-sheets-note="Sang Hyun Park: We have to buy shares until BOD+1 to be eligible to receive stock purchase rights. We then have to notify our dissenting opinion until the end of dissenting opinion notice period.">Schedule</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SK Inc"}' data-sheets-formula="=R[-15]C[0]">SK Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SK Materials Co Ltd"}' data-sheets-formula="=R[-12]C[-1]">SK Materials</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Last day to own stock purchase rights"}'><strong>Last day to own stock purchase rights</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"N/A"}'><strong>N/A</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44066}' data-sheets-numberformat='{"1":5,"2":"yyyy. mm. dd","3":1}'><strong>2020. 08. 23</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Ex-rights date"}'><strong>Ex-rights date</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44442}' data-sheets-numberformat='{"1":5,"2":"yyyy. mm. dd","3":1}'><strong>2021. 09. 03</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44442}' data-sheets-numberformat='{"1":5,"2":"yyyy. mm. dd","3":1}'><strong>2021. 09. 03</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Record date of shareholder register"}'>Record date of shareholder register</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44445}' data-sheets-numberformat='{"1":5,"2":"yyyy. mm. dd","3":1}'>2021. 09. 06</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44445}' data-sheets-numberformat='{"1":5,"2":"yyyy. mm. dd","3":1}'>2021. 09. 06</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Dissenting opinion notice"}'><strong>Dissenting opinion notice</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"2021. 09. 06 ~ 09. 23"}'><strong>2021. 09. 06 ~ 09. 23</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"2021. 10. 14 ~ 10. 28"}'><strong>2021. 10. 14 ~ 10. 28</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Shareholder meeting"}'>Shareholder meeting</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"N/A"}'>N/A</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44498}' data-sheets-numberformat='{"1":5,"2":"yyyy. mm. dd","3":1}'>2021. 10. 29</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Stock purchase right exercise"}'><strong>Stock purchase right exercise</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"N/A"}'><strong>N/A</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"2021. 10. 29 ~ 11. 18"}'><strong>2021. 10. 29 ~ 11. 18</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Trade suspension"}'>Trade suspension</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"N/A"}'>N/A</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"2021. 11. 29 ~ 12. 24"}'>2021. 11. 29 ~ 12. 24</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Listing"}'>Listing</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"N/A"}'>N/A</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44557}' data-sheets-numberformat='{"1":5,"2":"yyyy. mm. dd","3":1}'>2021. 12. 27</td>
</tr>
<tr><td colspan="3" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table>

Event overviewWe have another stock swap event in Korea. SK Inc (SK Holdings) merges with SK Materials. SK Inc will be a surviving entity, and SK Materials will be dissolved. So yes, this is a nearly pure arb opportunity. I need to stress the word "Nearly" here, meaning that it isn't a 100% risk-free arb. But the only risk here is cancellation, which will be triggered by the stock purchase ceiling amount of ₩800.0B.





Swap overview

Type
Stock swap


Acquirer
SK Inc (034730 KS)


Target company
SK Materials (036490 KS)


Swap price for SK Inc
₩264,076


Swap price for SK Materials
₩416,670


Swap ratio
1.5778412


Stock purchase ceiling amount
₩0.80T


Exercise price - SK Inc
N/A


Exercise price - SK Materials
₩415,751

Source: DART

Below are the swap price calculations for both companies, giving a swap ratio of 1 to 1.5778412. That is, SK Materials shareholders will receive 1.5778412 shares of SK Inc for each of their SK Materials share.








Swap prices
SK Inc
SK Materials
Note


1-month VWAP (July 20~August 19, 2021)
₩270,513
₩425,992
A


1-week VWAP (August 13~19, 2021)
₩262,714
₩420,319
B


1-day close (August 19, 2021)
₩259,000
₩403,700
C


Swap price
₩264,076
₩416,670
(A+B+C)/3

Source: DART &amp; KRX

This event qualified as a small-scale merger. It means that the number of newly issued shares being transferred in a merger is less than the 10% threshold of the total issued shares.





Small scale merger qualification

SK Materials target shares: NPS + Minority shareholders
35.81%


Number of shares to swap
3,776,936


Swap ratio
1.5778412


Number of shares to be issued by SK Inc
5,962,879


- % of SK Inc SO
8.47% (less than the 10% threshold)

Source: DART


Here are the benefits of a small-scale merger:

An acquiring entity (SK Inc) doesn't need shareholder approval, meaning that SK Inc shareholders won't be granted appraisal rights.
Only an acquired entity (SK Materials) needs shareholder approval, meaning that SK Materials shareholders get appraisal rights.
But SK Inc shareholders still get a right to oppose to this merger. If more than 20% of the shareholders oppose, an acquiring company should cancel the merger.

This is the appraisal rights exercise price for SK Materials. As mentioned right above, SK Inc shareholders are not granted stock purchase rights.








Stock purchase rights
SK Inc
SK Materials
Note


2-month VWAP (June 20~August 19, 2021)
-
₩400,942
A


1-month VWAP (July 20~August 19, 2021)
-
₩425,992
B


1-week VWAP (August 13~19, 2021)
-
₩420,319
C


Exercise price
-
₩415,751
(A+B+C)/3

Source: DART &amp; KRX

Below is the schedule. And the most important part is that we need to buy SK Materials shares until next Monday (August 23) to become eligible to exercise appraisal rights. It is important to note that the ex-rights date isn't the deadline for the stock purchase rights eligibility. The ex-rights date in this event is the deadline to become eligible to oppose to the merger.







Schedule
SK Inc
SK Materials


Last day to own stock purchase rights
N/A
2020. 08. 23


Ex-rights date
2021. 09. 03
2021. 09. 03


Record date of shareholder register
2021. 09. 06
2021. 09. 06


Dissenting opinion notice
2021. 09. 06 ~ 09. 23
2021. 10. 14 ~ 10. 28


Shareholder meeting
N/A
2021. 10. 29


Stock purchase right exercise
N/A
2021. 10. 29 ~ 11. 18


Trade suspension
N/A
2021. 11. 29 ~ 12. 24


Listing
N/A
2021. 12. 27

Source: DART



A "Nearly" Pure Arb Opportunity: SK Holdings & SK Materials Stock Swap

Equity Capital Markets

<div class="content-highlight">
<p><strong>SK REIT is one of the most attractive REITs in Korea so far in 2021. As such, we have a positive view of this IPO and would subscribe to this deal. </strong></p>
<p>SK REIT will be the REIT vehicle of the SK Group. Over the next 5-10 years, SK REIT has the potential to grow its assets to about 5-10 trillion won, in our view. SK REIT currently has two major properties including SK Seorin building and 116 gas stations which are very stable and have SK Group companies as tenants. The annual dividend yield is 5.4% which we think is quite achievable. </p>
<div>SK REIT has the right to negotiate the preferred purchase of core real estate assets held by SK Group. <span>If all assets subject to preferred purchase negotiation rights held by SK REIT are incorporated, it is expected that the total amount of assets will be approximately 4 trillion won by 2024. </span><span>In addition, SK REIT plans to expand into SK Group's core business-related assets such as data centers, new energy, logistics centers, and overseas assets which could be included in its REIT portfolio.</span>
</div>
<div></div>
</div><div>SK REIT IPO is expected to be completed in September. The expected IPO price per share is 5,000 won and there are 46.5 million shares offered in the IPO. The IPO deal size is about $200 million. The institutional investors will be allotted about 70% and retail will account for the rest. The book building for the institutional investors starts on 23 August. Expected market cap after the IPO is 775 billion won. Korea Investment &amp; Securities, Samsung Securities, and SK Securities are the major bankers in this deal. </div><table class="table table-striped">
<colgroup>
<col>
<col>
</colgroup>
<tbody>
<tr><td colspan="2" style="width: 518pt;"><div>Deal Specifics of the SK REIT IPO:</div></td></tr>
<tr>
<td>Lead underwriters of the IPO: </td>
<td style="width: 260pt;">Korea Investment &amp; Securities, Samsung Securities, SK Securities</td>
</tr>
<tr>
<td>Expected IPO price per share: </td>
<td style="width: 260pt;">5,000 won (low)/5,000 won (high)</td>
</tr>
<tr>
<td>Number of Shares for IPO:</td>
<td style="width: 260pt;">46.5mn </td>
</tr>
<tr>
<td>IPO base deal size: </td>
<td style="width: 260pt;">US$200mn</td>
</tr>
<tr>
<td>Expected common shares outstanding, fully diluted (post-IPO):  </td>
<td style="width: 260pt;">155mn shares</td>
</tr>
<tr>
<td>Expected market cap after IPO:</td>
<td style="width: 260pt;">775 billion won</td>
</tr>
<tr>
<td>Book open: </td>
<td style="text-align: left; width: 260pt;">23-Aug-21</td>
</tr>
<tr>
<td>Book closed:</td>
<td style="text-align: left; width: 260pt;">24-Aug-21</td>
</tr>
<tr>
<td>Listing date: </td>
<td style="text-align: left; width: 260pt;">TBD</td>
</tr>
<tr>
<td>Source: Company data</td>
<td> </td>
</tr>
</tbody>
</table>


SK REIT is one of the most attractive REITs in Korea so far in 2021. As such, we have a positive view of this IPO and would subscribe to this deal. 
SK REIT will be the REIT vehicle of the SK Group. Over the next 5-10 years, SK REIT has the potential to grow its assets to about 5-10 trillion won, in our view. SK REIT currently has two major properties including SK Seorin building and 116 gas stations which are very stable and have SK Group companies as tenants. The annual dividend yield is 5.4% which we think is quite achievable. 
SK REIT has the right to negotiate the preferred purchase of core real estate assets held by SK Group. If all assets subject to preferred purchase negotiation rights held by SK REIT are incorporated, it is expected that the total amount of assets will be approximately 4 trillion won by 2024. In addition, SK REIT plans to expand into SK Group's core business-related assets such as data centers, new energy, logistics centers, and overseas assets which could be included in its REIT portfolio.


SK REIT IPO is expected to be completed in September. The expected IPO price per share is 5,000 won and there are 46.5 million shares offered in the IPO. The IPO deal size is about $200 million. The institutional investors will be allotted about 70% and retail will account for the rest. The book building for the institutional investors starts on 23 August. Expected market cap after the IPO is 775 billion won. Korea Investment &amp; Securities, Samsung Securities, and SK Securities are the major bankers in this deal. 





Deal Specifics of the SK REIT IPO:

Lead underwriters of the IPO: 
Korea Investment &amp; Securities, Samsung Securities, SK Securities


Expected IPO price per share: 
5,000 won (low)/5,000 won (high)


Number of Shares for IPO:
46.5mn 


IPO base deal size: 
US$200mn


Expected common shares outstanding, fully diluted (post-IPO):  
155mn shares


Expected market cap after IPO:
775 billion won


Book open: 
23-Aug-21


Book closed:
24-Aug-21


Listing date: 
TBD


Source: Company data
 




SK REIT IPO - Benchmarking Singapore's Ascendas REIT

South Korea

SK Holdings Co., Ltd. is a holdings company that is engaged in various industries including energy, chemicals, information technology, semiconductors, marketing, and services businesses in South Korea and internationally.

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