Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Event-Driven

<div class="content-highlight">In this insight, we highlight the closing of the pricing gaps between the major Korean holdcos and opcos, especially with the upcoming end of the ban on the short selling of shares in Korea in May. In this insight, we highlight 26 pair trades that involve Korean holdcos and opcos.</div>Just a reminder that the ban on short selling of KOSPI 200 and KOSDAQ 150 included stocks will remain in place until May 2nd and investors will be able to resume their shorting on these 350 stocks starting on May 3rd. Once this ban on short selling of stocks ends, there could be more investors that may look to add to the holdco shares and short the opco shares (especially among the pairs where the holdco shares have underperformed the opco shares in the past year). However, some of these moves have already started to take place in the past few weeks, which could reduce the overall profits on the pair trades. Traditionally, the pair trades involving Korean holdcos and opcos have been a trading strategy that many hedge funds have employed for many years. However, the ban on short selling of stocks in Korea have prevented many of these funds from employing these pair trade strategies. Once the ban ends, you will likely see these funds becoming more active in these trading methods once again. <div class="content-highlight">
In the section below, we separated the pair trades into two different sections. The first table involves major opcos outperforming holdcos (regular and quasi) in the past year. Of the 26 pair trade strategies mentioned in this insight, this section I involves 19 of them (73% of total). The section II (which involve holdcos outperforming the opcos in the past year) involves 7 pair trade strategies (27% of total).
In other words, the opcos in general have vastly outperformed the holdcos in the past year, especially due to the ban on the short selling of stocks in Korea. Because the opcos tend to be the bigger company than the holdcos in terms of market cap, many fund managers (both active and passive) have tended to just invest in the opcos and pay less attention to the holdcos.  
</div>Also, we described the holdcos as either regular or quasi. SK Telecom and Samsung C&amp;T would be examples of "quasi" holdcos whereas Orion Holdings and Hanjin Kal would be examples of regular holdcos.

In this insight, we highlight the closing of the pricing gaps between the major Korean holdcos and opcos, especially with the upcoming end of the ban on the short selling of shares in Korea in May. In this insight, we highlight 26 pair trades that involve Korean holdcos and opcos.Just a reminder that the ban on short selling of KOSPI 200 and KOSDAQ 150 included stocks will remain in place until May 2nd and investors will be able to resume their shorting on these 350 stocks starting on May 3rd. Once this ban on short selling of stocks ends, there could be more investors that may look to add to the holdco shares and short the opco shares (especially among the pairs where the holdco shares have underperformed the opco shares in the past year). However, some of these moves have already started to take place in the past few weeks, which could reduce the overall profits on the pair trades. Traditionally, the pair trades involving Korean holdcos and opcos have been a trading strategy that many hedge funds have employed for many years. However, the ban on short selling of stocks in Korea have prevented many of these funds from employing these pair trade strategies. Once the ban ends, you will likely see these funds becoming more active in these trading methods once again. 
In the section below, we separated the pair trades into two different sections. The first table involves major opcos outperforming holdcos (regular and quasi) in the past year. Of the 26 pair trade strategies mentioned in this insight, this section I involves 19 of them (73% of total). The section II (which involve holdcos outperforming the opcos in the past year) involves 7 pair trade strategies (27% of total).
In other words, the opcos in general have vastly outperformed the holdcos in the past year, especially due to the ban on the short selling of stocks in Korea. Because the opcos tend to be the bigger company than the holdcos in terms of market cap, many fund managers (both active and passive) have tended to just invest in the opcos and pay less attention to the holdcos.  
Also, we described the holdcos as either regular or quasi. SK Telecom and Samsung C&amp;T would be examples of "quasi" holdcos whereas Orion Holdings and Hanjin Kal would be examples of regular holdcos. 

Closing the Gap: Korean Holdcos Vs. Opcos

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.

<div>
Korea has three spinoff stocks entering trading suspension on April 29. The corporate action of these spinoffs are as follows:
<ul>
<li>The market cap on the last trading day before the suspension will be applied in the index calculation during the trading suspension and the re-listing day.</li>
<li>The market cap on the re-listing day will be applied in the index calculation on the following trading day.</li>
</ul>
</div><div>
<table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td style="width: 153.636px;" data-sheets-value='{"1":2,"2":"Schedule"}'>Corporate action schedule</td>
<td style="text-align: right; width: 110px;">LG Corp (003550)</td>
<td style="text-align: right; width: 80px;">F&amp;F (007700)</td>
<td style="text-align: right; width: 100.909px;">ECOPRO (086520)</td>
<td style="text-align: left; width: 195.455px;">Action</td>
</tr>
<tr>
<td style="width: 153.636px;" data-sheets-value='{"1":2,"2":"Trade suspension begins"}'>Trade suspension begins</td>
<td style="text-align: right; width: 110px;" data-sheets-value='{"1":3,"3":44315}' data-sheets-numberformat='{"1":5,"2":"m\"/\"d\"/\"yy"}'>4/29/21</td>
<td style="text-align: right; width: 80px;">4/29/21</td>
<td style="text-align: right; width: 100.909px;">4/29/21</td>
<td rowspan="3" style="text-align: left; width: 195.455px;">The market cap on the last trading day before the suspension</td>
</tr>
<tr>
<td style="width: 153.636px;" data-sheets-value='{"1":2,"2":"Trade suspensino ends"}'>Trade suspensino ends</td>
<td style="text-align: right; width: 110px;" data-sheets-value='{"1":3,"3":44342}' data-sheets-numberformat='{"1":5,"2":"m\"/\"d\"/\"yy"}'>5/26/21</td>
<td style="text-align: right; width: 80px;">5/20/21</td>
<td style="text-align: right; width: 100.909px;">5/27/21</td>
</tr>
<tr>
<td style="width: 153.636px;" data-sheets-value='{"1":2,"2":"Relistnig"}'>Re-listing</td>
<td style="text-align: right; width: 110px;" data-sheets-value='{"1":3,"3":44343}' data-sheets-numberformat='{"1":5,"2":"m\"/\"d\"/\"yy"}'>5/27/21</td>
<td style="text-align: right; width: 80px;">5/21/21</td>
<td style="text-align: right; width: 100.909px;">5/28/21</td>
</tr>
<tr>
<td style="width: 153.636px;">Following trading day</td>
<td style="text-align: right; width: 110px;">5/28/21</td>
<td style="text-align: right; width: 80px;">5/24/21</td>
<td style="text-align: right; width: 100.909px;">5/31/21</td>
<td style="text-align: left; width: 195.455px;">The market cap on the re-listing day</td>
</tr>
<tr>
<td colspan="4" style="width: 507.273px;" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: KRX</td>
<td style="width: 195.455px;"></td>
</tr>
</tbody>
</table>
To minimize the tracking error, passive funds generally sell spinoff shares at the close price on the last trading day before the suspension and repurchase them at the close price on the re-listing day. 
Of course, active funds do the opposite. Their rule of thumb is buying spinoff shares before the trade suspension.
But these aren't definite rules. More and more local passive funds have been flexible in the recent spinoffs. Similarly, local active funds do not seem to be blindly following this rule anymore.
So, here are three possible approaches that local passive funds may consider for spinoffs:
<ol>
<li>Sell all on the last trading day and repurchase the portion of an index-included company on the re-listing day.</li>
<li>Sell only the portion of an index-excluded company on the last trading day.</li>
<li>Sell only the portion of an index-excluded company on the re-listing day.</li>
</ol>
The local spinoffs in recent years show that the public offering funds, managing mostly ETFs, still stick to the first approach. On the other hand, the NPS index funds and the variable insurance index funds lean towards the third approach.
</div>


Korea has three spinoff stocks entering trading suspension on April 29. The corporate action of these spinoffs are as follows:

The market cap on the last trading day before the suspension will be applied in the index calculation during the trading suspension and the re-listing day.
The market cap on the re-listing day will be applied in the index calculation on the following trading day.









Corporate action schedule
LG Corp (003550)
F&amp;F (007700)
ECOPRO (086520)
Action


Trade suspension begins
4/29/21
4/29/21
4/29/21
The market cap on the last trading day before the suspension


Trade suspensino ends
5/26/21
5/20/21
5/27/21


Re-listing
5/27/21
5/21/21
5/28/21


Following trading day
5/28/21
5/24/21
5/31/21
The market cap on the re-listing day


Source: KRX




To minimize the tracking error, passive funds generally sell spinoff shares at the close price on the last trading day before the suspension and repurchase them at the close price on the re-listing day. 
Of course, active funds do the opposite. Their rule of thumb is buying spinoff shares before the trade suspension.
But these aren't definite rules. More and more local passive funds have been flexible in the recent spinoffs. Similarly, local active funds do not seem to be blindly following this rule anymore.
So, here are three possible approaches that local passive funds may consider for spinoffs:

Sell all on the last trading day and repurchase the portion of an index-included company on the re-listing day.
Sell only the portion of an index-excluded company on the last trading day.
Sell only the portion of an index-excluded company on the re-listing day.

The local spinoffs in recent years show that the public offering funds, managing mostly ETFs, still stick to the first approach. On the other hand, the NPS index funds and the variable insurance index funds lean towards the third approach.


Korean Spinoffs Trade Ideas Amid Trade Suspension on April 29

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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

The review period 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> June review ends on 30 April. The Korea Exchange (KRX) will announce the results of the June 2021 review 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">Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX)</a> in May with the changes becoming effective after the close of trading on 10 June.There are currently 201 index constituents following the spin off of <a href="https://www.smartkarma.com/entities/daelim-industrial-co-ltd" target="_blank" data-smartkarma-citation="entities:18095:1" rel="noopener">DL Co Ltd (000210 KS)</a> and the inclusion of <a href="https://www.smartkarma.com/entities/dl-e-c-co-ltd" target="_blank" data-smartkarma-citation="entities:31375:1" rel="noopener">DL E&amp;C Co Ltd (375500 KS)</a> in the index. There will be 202 index constituents following the spin off of <a href="https://www.smartkarma.com/entities/lg-corp" target="_blank" data-smartkarma-citation="entities:6653:1" rel="noopener">LG Corp (003550 KS)</a> and the inclusion of LX Holdings in the index.We currently see 3 inclusions and 5 exclusions from the index. The potential inclusions are <a href="https://www.smartkarma.com/entities/hyosung-tnc-co-ltd" target="_blank" data-smartkarma-citation="entities:27749:1" rel="noopener">Hyosung TNC Co Ltd (298020 KS)</a>, <a href="https://www.smartkarma.com/entities/hyosung-advanced-materials-corporation" target="_blank" data-smartkarma-citation="entities:27751:1" rel="noopener">Hyosung Advanced Materials (298050 KS)</a> and <a href="https://www.smartkarma.com/entities/dongwon-industries-co-ltd" target="_blank" data-smartkarma-citation="entities:1783:1" rel="noopener">Dongwon Industries (006040 KS)</a>, while the potential deletions are <a href="https://www.smartkarma.com/entities/taeyoung-engineering-construction-co-ltd" target="_blank" data-smartkarma-citation="entities:18740:1" rel="noopener">Taeyoung Engineering &amp; Construction (009410 KS)</a>, <a href="https://www.smartkarma.com/entities/namsun-aluminum-co-ltd" target="_blank" data-smartkarma-citation="entities:17514:1" rel="noopener">Namsun Aluminum (008350 KS)</a>, <a href="https://www.smartkarma.com/entities/binggrae-co-ltd" target="_blank" data-smartkarma-citation="entities:16424:1" rel="noopener">Binggrae Co Ltd (005180 KS)</a>, <a href="https://www.smartkarma.com/entities/hanil-hyundai-cement-co-ltd" target="_blank" data-smartkarma-citation="entities:14406:1" rel="noopener">Hanil Hyundai Cement (006390 KS)</a> and <a href="https://www.smartkarma.com/entities/samyang-corp" target="_blank" data-smartkarma-citation="entities:16321:1" rel="noopener">Samyang Corp (145990 KS)</a>. The expected Fast Entry of <a href="https://www.smartkarma.com/entities/sk-bioscience-co-ltd" target="_blank" data-smartkarma-citation="entities:31484:1" rel="noopener">SK Bioscience (302440 KS)</a> could result in <a href="https://www.smartkarma.com/entities/spc-samlip" target="_blank" data-smartkarma-citation="entities:6007:1" rel="noopener">SPC Samlip (005610 KS)</a> being deleted from the index.The potential Fast Entry of <a href="https://www.smartkarma.com/entities/sk-ie-technology" target="_blank" data-smartkarma-citation="entities:29207:1" rel="noopener">SK IE Technology (SKIET KS)</a> could result in <a href="https://www.smartkarma.com/entities/aekyung-industrial-co-ltd" target="_blank" data-smartkarma-citation="entities:27129:1" rel="noopener">Aekyung Industrial Co Ltd (018250 KS)</a> being deleted from the index.<a href="https://www.smartkarma.com/entities/taihan-electric-wire-co-ltd" target="_blank" data-smartkarma-citation="entities:11551:1" rel="noopener">Taihan Electric Wire (001440 KS)</a> is a very close add - the next 5 trading days will decide if the stock is added to the index or not.Short selling in Korea is scheduled to resume on 3 May and there could be a fair amount of movement in the stocks ahead of the index review announcement and implementation date.

The review period for the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) June review ends on 30 April. The Korea Exchange (KRX) will announce the results of the June 2021 review of the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) in May with the changes becoming effective after the close of trading on 10 June.There are currently 201 index constituents following the spin off of DL Co Ltd (000210 KS) and the inclusion of DL E&amp;C Co Ltd (375500 KS) in the index. There will be 202 index constituents following the spin off of LG Corp (003550 KS) and the inclusion of LX Holdings in the index.We currently see 3 inclusions and 5 exclusions from the index. The potential inclusions are Hyosung TNC Co Ltd (298020 KS), Hyosung Advanced Materials (298050 KS) and Dongwon Industries (006040 KS), while the potential deletions are Taeyoung Engineering &amp; Construction (009410 KS), Namsun Aluminum (008350 KS), Binggrae Co Ltd (005180 KS), Hanil Hyundai Cement (006390 KS) and Samyang Corp (145990 KS). The expected Fast Entry of SK Bioscience (302440 KS) could result in SPC Samlip (005610 KS) being deleted from the index.The potential Fast Entry of SK IE Technology (SKIET KS) could result in Aekyung Industrial Co Ltd (018250 KS) being deleted from the index.Taihan Electric Wire (001440 KS) is a very close add - the next 5 trading days will decide if the stock is added to the index or not.Short selling in Korea is scheduled to resume on 3 May and there could be a fair amount of movement in the stocks ahead of the index review announcement and implementation date.

KOSPI200 Index Rebalance Preview: Review Period Almost Complete; Short Selling Commences in a Week

It seems to be spin-off season in Korea.Three <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> and <a href="https://www.smartkarma.com/entities/kosdaq-150-index" target="_blank" data-smartkarma-citation="entities:31077:1" rel="noopener">KOSDAQ 150 Index (KOSDQ150 INDEX)</a> constituents will be suspended from trading from 29 April - <a href="https://www.smartkarma.com/entities/lg-corp" target="_blank" data-smartkarma-citation="entities:6653:1" rel="noopener">LG Corp (003550 KS)</a>, <a href="https://www.smartkarma.com/entities/f-f-co-ltd" target="_blank" data-smartkarma-citation="entities:15983:1" rel="noopener">F&amp;F Co Ltd (007700 KS)</a> and <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> due to a spin-off of its businesses.<a href="https://www.smartkarma.com/entities/f-f-co-ltd" target="_blank" data-smartkarma-citation="entities:15983:1" rel="noopener">F&amp;F Co Ltd (007700 KS)</a> will resume trading on 21 May, <a href="https://www.smartkarma.com/entities/lg-corp" target="_blank" data-smartkarma-citation="entities:6653:1" rel="noopener">LG Corp (003550 KS)</a> will resume trading on 27 May, and <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> will resume trading on 28 May.<a href="https://www.smartkarma.com/entities/lg-corp" target="_blank" data-smartkarma-citation="entities:6653:1" rel="noopener">LG Corp (003550 KS)</a> will remain in 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> and its spinoff will be added to the index, <a href="https://www.smartkarma.com/entities/f-f-co-ltd" target="_blank" data-smartkarma-citation="entities:15983:1" rel="noopener">F&amp;F Co Ltd (007700 KS)</a> will remain in 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> but the spinoff will not be added to the index, <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> will continue to be a <a href="https://www.smartkarma.com/entities/kosdaq-150-index" target="_blank" data-smartkarma-citation="entities:31077:1" rel="noopener">KOSDAQ 150 Index (KOSDQ150 INDEX)</a> constituent though its spinoff will not be included in the index.In this Insight, we look at the index treatment, the impact of passive flow on the stocks, and the impact of the changes on the June rebalance 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">Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX)</a>.

It seems to be spin-off season in Korea.Three Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) and KOSDAQ 150 Index (KOSDQ150 INDEX) constituents will be suspended from trading from 29 April - LG Corp (003550 KS), F&amp;F Co Ltd (007700 KS) and Ecopro Co Ltd (086520 KS) due to a spin-off of its businesses.F&amp;F Co Ltd (007700 KS) will resume trading on 21 May, LG Corp (003550 KS) will resume trading on 27 May, and Ecopro Co Ltd (086520 KS) will resume trading on 28 May.LG Corp (003550 KS) will remain in the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) and its spinoff will be added to the index, F&amp;F Co Ltd (007700 KS) will remain in the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) but the spinoff will not be added to the index, Ecopro Co Ltd (086520 KS) will continue to be a KOSDAQ 150 Index (KOSDQ150 INDEX) constituent though its spinoff will not be included in the index.In this Insight, we look at the index treatment, the impact of passive flow on the stocks, and the impact of the changes on the June rebalance of the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX). 

Founder/CEO of ROK Advisory, ROK Advisory LLC

Ken S. Kim

Founder/CEO of ROK Advisory

ROK Advisory LLC

ROK is an independent research advisory firm. We guide you to minimize the information gap between foreign and local investors in Northeast Asia with a focus in Korea, Taiwan and Japan.

Independent Research Advisory Firm

Equity Bottom-Up

In Korea the safest way to invest is to align your interest as a minority shareholder with those of the family?  Usually the key asset of the chaebol is apparent but what about SK Group? It seems we have an opportunity to hone in what the key asset is.

In Korea the safest way to invest is to align your interest as a minority shareholder with those of the family?  Usually the key asset of the chaebol is apparent but what about SK Group? It seems we have an opportunity to hone in what the key asset is.

The Chaebol Dilemma - What's the Family Jewel(S)?

South Korea

LG Corp. is a holding company, which operates subsidiaries including LG Electronics, LG Household & Health Care, LG Chem Ltd., and Dacom Corp. The Company's main business areas are electronics, chemicals, and household products manufacturing and telecommunications services.

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LG Corp (003550 KS)

Closing the Gap: Korean Holdcos Vs. Opcos

In this insight, we highlight the closing of the pricing gaps between the major Korean holdcos and opcos, especially with the upcoming end of the...

Douglas Kim

Korean Spinoffs Trade Ideas Amid Trade Suspension on April 29

This post is intended to help formulate trade ideas on the three spinoff stocks in Korea before the trade suspension begins on April 29.

Sanghyun Park

KOSPI200 Index Rebalance Preview: Review Period Almost Complete; Short Selling Commences in a Week

There could be up to 6 inclusions and 8 exclusions at the KOSPI200 index review in June. The inclusions could outperform the exclusions as short...

Brian Freitas

Korea Spin-Offs: Index Treatment

LG Corp, F&F and Ecopro will be suspended from trading on 29 April due to their spin offs. Passive funds will sell stock at the close on 28 April...

Brian Freitas

The Chaebol Dilemma - What's the Family Jewel(S)?

What is the key asset of the SK Group and how should we play this over the course of time ? Here's at least what we should consider

Ken S. Kim

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