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><strong>This post is a detailed walkthrough of the LG Corp spinoff relisting.</strong></p><p><strong>It doesn't include any investment recommendation or view.</strong></p><hr><h2>Split ratio &amp; per share allocation</h2><p>The split ratio was fixed in advance based on the most recent financials before the board resolution on November 26 last year. So the split ratio calculation used the 3Q20 financials.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
<col width="100">
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<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"3Q 2020"}'>3Q 2020</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Before"}'>Pre-split</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"LG Corp"}'>LG Corp</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"LX Holdings"}'>LX Holdings</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Assets"}'>Assets</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":10692.9}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩10,692.9B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":9779.8}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩9,779.8B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":913.3}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩913.3B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Liabilities"}'>Liabilities</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":393.4}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩393.4B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":390.9}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩390.9B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2.5}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩2.5B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Equity"}'><strong>Equity (net asset)</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":10299.5}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'><strong>₩10,299.5B</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":9388.9}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'><strong>₩9,388.9B</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":910.8}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'><strong>₩910.8B</strong></td>
</tr>
<tr><td colspan="4" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><p>We got the spinoff ratio as a spinoff net asset over the pre-split total net asset, including the treasury shares. This calculation spits out <strong>0.0884121 for LX Holdings</strong>. Subsequently, <strong>LG Corp</strong> gets <strong>0.9115879</strong>, which is 1 - LX Holdings.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr><td colspan="3" style="width: 723.636px;" data-sheets-value='{"1":2,"2":"Detailed calculation of split ratio"}'>Detailed calculation of the split ratio</td></tr>
<tr>
<td style="width: 227.273px;" data-sheets-value='{"1":2,"2":"LX Holdings equity (net asset)"}'><strong>LX Holdings equity (net asset)</strong></td>
<td style="text-align: right; width: 227.273px;" data-sheets-value='{"1":3,"3":910.812100447}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'><strong>₩910.8B</strong></td>
<td style="text-align: right; width: 227.273px;" data-sheets-value='{"1":2,"2":"A"}'><strong>A</strong></td>
</tr>
<tr>
<td style="width: 227.273px;" data-sheets-value='{"1":2,"2":"Pre-splilt net asset"}'>Pre-split equity (net asset)</td>
<td style="text-align: right; width: 227.273px;" data-sheets-value='{"1":3,"3":10299.504916112}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩10,299.5B</td>
<td style="text-align: right; width: 227.273px;" data-sheets-value='{"1":2,"2":"B"}'>B</td>
</tr>
<tr>
<td style="width: 227.273px;" data-sheets-value='{"1":2,"2":"Pre-split treasury shares"}'>Pre-split treasury shares</td>
<td style="text-align: right; width: 227.273px;" data-sheets-value='{"1":3,"3":2.385112284}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩2.4B</td>
<td style="text-align: right; width: 227.273px;" data-sheets-value='{"1":2,"2":"C"}'>C</td>
</tr>
<tr>
<td style="width: 227.273px;" data-sheets-value='{"1":2,"2":"Split ratio for LX Holdings"}'><strong>The split ratio for LX Holdings</strong></td>
<td style="text-align: right; width: 227.273px;" data-sheets-value='{"1":3,"3":0.08841213582521741}' data-sheets-numberformat='{"1":2,"2":"#,##0.0000000","3":1}' data-sheets-formula="=R[-3]C[0]/(R[-2]C[0]+R[-1]C[0])"><strong>0.0884121</strong></td>
<td style="text-align: right; width: 227.273px;" data-sheets-value='{"1":2,"2":"D = A / (B + C)"}'><strong>D = A / (B + C)</strong></td>
</tr>
<tr>
<td style="width: 227.273px;" data-sheets-value='{"1":2,"2":"Split ratio for LG Corp"}'><strong>The split ratio for LG Corp</strong></td>
<td style="text-align: right; width: 227.273px;" data-sheets-value='{"1":3,"3":0.9115878641747825}' data-sheets-numberformat='{"1":2,"2":"#,##0.0000000","3":1}' data-sheets-formula="=1-R[-2]C[0]"><strong>0.9115879</strong></td>
<td style="text-align: right; width: 227.273px;" data-sheets-value='{"1":2,"2":"1 - D"}'><strong>1 - D</strong></td>
</tr>
<tr><td colspan="3" style="width: 723.636px;" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><p>We basically apply the split ratio to the pre-split total shares to get the total shares of each company, both ordinary and 1P. We have to be careful here. <strong>LX Holdings underwent a 5-for-1 stock split</strong>. So, we have to multiply it by 5. Here are the final results for both companies' ordinary and preferred shares.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td style="width: 260.909px;" data-sheets-value='{"1":2,"2":"Detailed calculation of split ratio"}'>Total shares &amp; per-share allocation</td>
<td style="text-align: right; width: 142.727px;" data-sheets-value='{"1":2,"2":"Ordinary"}'>Ordinary</td>
<td style="text-align: right; width: 117.273px;" data-sheets-value='{"1":2,"2":"1P"}'>1P</td>
<td style="text-align: right; width: 140px;" data-sheets-value='{"1":2,"2":"Per-share allocation"}'>Per-share allocation</td>
</tr>
<tr>
<td style="width: 260.909px;" data-sheets-value='{"1":2,"2":"Pre-split"}'>Pre-split</td>
<td style="text-align: right; width: 142.727px;" data-sheets-value='{"1":3,"3":172557131}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'>172,557,131</td>
<td style="text-align: right; width: 117.273px;" data-sheets-value='{"1":3,"3":3314677}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'>3,314,677</td>
<td style="text-align: right; width: 140px;" data-sheets-value='{"1":2,"2":"-"}' data-sheets-numberformat='{"1":2,"2":"#,##0.0","3":1}'>-</td>
</tr>
<tr>
<td style="width: 260.909px;" data-sheets-value='{"1":2,"2":"LG Corp"}'><strong>LG Corp</strong></td>
<td style="text-align: right; width: 142.727px;" data-sheets-value='{"1":3,"3":157300993}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula="=CEILING.MATH(R[-1]C[0]*R[-5]C[0], 16)+1"><strong>157,300,993</strong></td>
<td style="text-align: right; width: 117.273px;" data-sheets-value='{"1":3,"3":3021620.326859276}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula="=R[-1]C[0]*R[-5]C[-1]+1"><strong>3,021,620</strong></td>
<td style="text-align: right; width: 140px;" data-sheets-value='{"1":3,"3":0.9115878641747825}' data-sheets-numberformat='{"1":2,"2":"#,##0.0000000","3":1}' data-sheets-formula="=R[-5]C[-2]"><strong>0.9115879</strong></td>
</tr>
<tr>
<td style="width: 260.909px;" data-sheets-value='{"1":2,"2":"LX Holdings"}'>LX Holdings</td>
<td style="text-align: right; width: 142.727px;" data-sheets-value='{"1":3,"3":15256144.503581833}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula="=R[-2]C[0]*R[-8]C[0]">15,256,145</td>
<td style="text-align: right; width: 117.273px;" data-sheets-value='{"1":3,"3":293057.6}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula="=ROUNDDOWN(R[-2]C[0]*R[-8]C[-1], 1)">293,058</td>
<td style="text-align: right; width: 140px;" data-sheets-value='{"1":3,"3":0.44206067912608704}' data-sheets-numberformat='{"1":2,"2":"#,##0.0000000","3":1}' data-sheets-formula="=R[-7]C[-2]">-</td>
</tr>
<tr>
<td style="width: 260.909px;" data-sheets-value='{"1":2,"2":" - 5 for 1 stock split"}'><strong>- 5 for 1 stock split</strong></td>
<td style="text-align: right; width: 142.727px;" data-sheets-value='{"1":3,"3":76280690}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula="=Floor.Math(R[-1]C[0]*5, 5)-30"><strong>76,280,690</strong></td>
<td style="text-align: right; width: 117.273px;" data-sheets-value='{"1":3,"3":1465285}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula="=Floor.Math(R[-1]C[0]*5, 5)"><strong>1,465,285</strong></td>
<td style="text-align: right; width: 140px;" data-sheets-value='{"1":2,"2":"-"}' data-sheets-numberformat='{"1":2,"2":"#,##0.0","3":1}'><strong>0.4420607</strong></td>
</tr>
<tr><td colspan="4" rowspan="1" style="width: 723.636px;" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><p><strong>In the end, your one share of the pre-split LG Corp will be converted into 0.9115879 shares of LG Corp ordinary and 1P and 0.4420607 shares of LX Holdings ordinary and 1P.</strong></p>

This post is a detailed walkthrough of the LG Corp spinoff relisting.It doesn't include any investment recommendation or view.Split ratio &amp; per share allocationThe split ratio was fixed in advance based on the most recent financials before the board resolution on November 26 last year. So the split ratio calculation used the 3Q20 financials.








3Q 2020
Pre-split
LG Corp
LX Holdings


Assets
₩10,692.9B
₩9,779.8B
₩913.3B


Liabilities
₩393.4B
₩390.9B
₩2.5B


Equity (net asset)
₩10,299.5B
₩9,388.9B
₩910.8B

Source: DART

We got the spinoff ratio as a spinoff net asset over the pre-split total net asset, including the treasury shares. This calculation spits out 0.0884121 for LX Holdings. Subsequently, LG Corp gets 0.9115879, which is 1 - LX Holdings.






Detailed calculation of the split ratio

LX Holdings equity (net asset)
₩910.8B
A


Pre-split equity (net asset)
₩10,299.5B
B


Pre-split treasury shares
₩2.4B
C


The split ratio for LX Holdings
0.0884121
D = A / (B + C)


The split ratio for LG Corp
0.9115879
1 - D

Source: DART

We basically apply the split ratio to the pre-split total shares to get the total shares of each company, both ordinary and 1P. We have to be careful here. LX Holdings underwent a 5-for-1 stock split. So, we have to multiply it by 5. Here are the final results for both companies' ordinary and preferred shares.








Total shares &amp; per-share allocation
Ordinary
1P
Per-share allocation


Pre-split
172,557,131
3,314,677
-


LG Corp
157,300,993
3,021,620
0.9115879


LX Holdings
15,256,145
293,058
-


- 5 for 1 stock split
76,280,690
1,465,285
0.4420607

Source: DART

In the end, your one share of the pre-split LG Corp will be converted into 0.9115879 shares of LG Corp ordinary and 1P and 0.4420607 shares of LX Holdings ordinary and 1P.

The Korea Fair Trade Commission (KFTC) annually designates local conglomerates having an aggregate asset value of more than ₩5T as a Business Group Subject to Disclosure. These are the largest industrial conglomerates designated as a Business Group Subject to Disclosure as of the last yearend.









Rank
Conglomerate
Aggregate asset value
Number of subsidiaries
Holdco type


1
Samsung
₩424.9T
59
De-facto operating holdco


2
Hyundai Motor
₩234.7T
54
-


3
SK
₩225.5T
125
Legitimate operating holdco


4
LG
₩137.0T
70
Legitimate pure holdco


5
Lotte
₩121.5T
86
Legitimate pure holdco


6
POSCO
₩80.3T
35
-


7
Hanwha
₩71.7T
86
De-facto pure holdco


8
GS
₩66.8T
69
Legitimate pure holdco


9
Hyundai Heavy Industries
₩62.9T
30
Legitimate pure holdco


10
Shinsegae
₩44.1T
41
-


11
KT
₩36.3T
44
-


12
CJ
₩34.5T
77
Legitimate pure holdco


13
Hanjin
₩33.6T
31
Legitimate pure holdco


14
Doosan
₩29.3T
25
De facto pure holdco


15
LS
₩23.7T
54
Legitimate operating holdco


16
Booyoung
₩23.3T
23
-


17
DL
₩18.7T
32
Legitimate operating holdco

Source: Kore Fair Trade Commission

Of these 17 largest industrial conglomerates having an aggregate asset value of more than ₩20T, 6 business groups are suitable for pair trading with a synthetic subsidiary.
Samsung Group
SK Group
LG Group
Lotte Group
Hanwha Group
CJ Group
Hyundai Motor Group is a circular shareholding structure, not suitable for pair trading. POSCO, Shinsegae, KT, LS, and DL have substantial operating operations outweighing their respective listed subsidiaries. GS and Hyundai Heavy Industries have a significant presence from the unlisted companies: GS Caltex and Hyundai Oilbank. Hanjin and Doosan are more of single-subsidiary holding companies. Lastly, Booyoung is a privately-held company.Discount to NAV Samsung C&amp;T has the highest discount to the NAV at 62.77%, followed by SK Inc with 52.14%. On the other hand, CJ Corp has the lowest discount at 34.19%. Hanwha Corp also has a lower discount than the others at 38.87%.











NAV
LG Corp
Samsung C&amp;T Corp
SK Inc
Lotte Corp
Hanwha Corp
CJ Corp


Value of listed holdings
₩41,080.4B
₩52,346.7B
₩24,237.4B
₩5,377.5B
₩4,501.4B
₩5,038.1B


- % of Holdco market cap
188.20%
201.51%
128.30%
139.29%
195.29%
158.42%


Value of unlisted holdings
₩2,631.7B
₩2,528.3B
₩9,890.5B
₩1,147.7B
₩1,657.0B
₩311.7B


Stub value
-₩21,883.7B
-₩28,897.7B
-₩15,236.2B
-₩2,664.6B
-₩3,853.5B
-₩2,169.5B


Stub value per share
-₩126,820
-₩154,626
-₩216,545
-₩25,399
-₩51,408
-₩74,357


Value of operating assets
₩0.0B
₩6,100.3B
₩2,235.2B
₩0.0B
₩0.0B
₩0.0B


GAV
₩43,712.1B
₩60,975.2B
₩36,363.1B
₩6,525.2B
₩6,158.4B
₩5,349.8B


GAV per share
₩253,320
₩373,019
₩695,187
₩92,157
₩89,623
₩197,713


Discount to GAV (excl. treasury shares)
50.06%
62.74%
61.38%
60.07%
65.69%
44.87%


Holdco net cash/debt (de-consolidated)
₩1,941.8B
₩268.6B
-₩6,879.4B
-₩1,764.4B
-₩2,330.8B
-₩357.6B


Value of pref shares
₩329.8B
₩219.7B
₩140.4B
₩63.2B
₩371.0B
₩510.3B


NAV
₩45,324.1B
₩61,024.1B
₩29,343.3B
₩4,697.6B
₩3,456.7B
₩4,481.9B


NAV per share (excl. treasury shares)
₩262,662
₩373,318
₩560,983
₩66,346
₩50,304
₩165,638


Discount to NAV
51.84%
62.77%
52.14%
44.53%
38.87%
34.19%

Source: KRX &amp; DART

Synthetic subsidiary weightThe number of subsidiaries in a synthetic varies from 2 to 4, representing 67.91% to 130.22% of the NAV. LG Corp has 4, the most, having a synthetic weight of 87.87% of the NAV. SK Inc has 3 subsidiaries in its synthetic, representing 67.91% of the NAV. 









Holdco pair
Number of subsidiaries in a synthetic
Synthetic subsidiary weight in NAV
Synthetic subsidiary weight in GAV


LG Corp
4
87.87%
91.11%


Samsung C&amp;T Corp
2
76.04%
76.10%


SK Inc
3
67.91%
54.80%


Lotte Corp
2
80.47%
57.93%


Hanwha Corp
3
130.22%
73.09%


CJ Corp
2
99.77%
83.58%

Source: KRX

Sigma on a 20-day moving averageWhen I'm writing this post (2 PM in Korea local time today), SK Inc and Hanwha Corp are in a diversion below -1.0σ on a 20-day moving average relative to their respective synthetic subsidiary. In contrast, CJ Corp is in a 2.0σ diversion, just the opposite way.











Sigma (σ) on a 20-day moving average
Today
T-1
T-2
T-3
T-4


LG Corp
0.87
1.02
1.26
1.39
1.56


Samsung C&amp;T Corp
-0.47
-0.55
0.30
-2.25
-2.53


SK Inc
-1.41
-1.64
-1.67
-1.74
-1.81


Lotte Corp
0.86
1.44
1.91
1.97
2.64


Hanwha Corp
-1.16
-0.77
-0.96
0.44
1.35


CJ Corp
1.92
1.03
0.54
0.82
1.83

Source: KRX



Korea Top Conglomerates Synthetic Pair Trading

<p>LG Corp is currently in trade suspension. It will resume trading on May 27.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Corporate action schedule"}'>LG Corp (003550) spinoff schedule</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Trade suspension begins"}'>Trade suspension begins</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"4/29/21"}'>4/29/21</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Trade suspensino ends"}'>Trade suspension ends</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"5/26/21"}'>5/26/21</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Re-listing"}'><strong>Re-listing</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"5/27/21"}'><strong>5/27/21</strong></td>
</tr>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Source: KRX"}'>Source: KRX</td></tr>
</tbody>
</table><div><p>The re-listing day base price is calculated as follows:</p></div><div><div><ul>
<li>Base price: (Market cap on the last trading day X Split ratio) / total shares</li>
<li>Opening price band: 50% &lt; Base price &lt; 200%</li>
</ul></div></div><div>
<p><strong>At the current market cap, LG Corp's base price comes at ₩126,500, giving a ₩19.90T market cap. LX Holdings' base price arrives at ₩25,300 with a ₩1.93T market cap.</strong></p>
<table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td style="width: 253.636px;" data-sheets-value='{"1":2,"2":"Re-listing day base price calculation"}'>Re-listing day base price calculation</td>
<td style="text-align: right; width: 214.545px;" data-sheets-value='{"1":2,"2":"LG Corp"}'>LG Corp</td>
<td style="text-align: right; width: 213.636px;" data-sheets-value='{"1":2,"2":"LX Holdings"}'>LX Holdings</td>
</tr>
<tr>
<td style="width: 253.636px;" data-sheets-value='{"1":2,"2":"Last trading day MC"}'>Combined market cap on the last trading day</td>
<td style="text-align: right; width: 214.545px;" data-sheets-value='{"1":3,"3":21828.4770715}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula='=googlefinance(Table!R3C2, "price")*googlefinance(Table!R3C2, "shares")/1000000000'>₩21,828.5B</td>
<td style="text-align: right; width: 213.636px;" data-sheets-value='{"1":3,"3":21828.4770715}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula='=googlefinance(Table!R3C2, "price")*googlefinance(Table!R3C2, "shares")/1000000000'>₩21,828.5B</td>
</tr>
<tr>
<td style="width: 253.636px;" data-sheets-value='{"1":2,"2":"LG Corp split ratio"}'><strong>Split ratio</strong></td>
<td style="text-align: right; width: 214.545px;" data-sheets-value='{"1":3,"3":0.9115879}' data-sheets-formula="=R[13]C[-4]"><strong>0.9115879</strong></td>
<td style="text-align: right; width: 213.636px;" data-sheets-value='{"1":3,"3":0.0884121}' data-sheets-formula="=R[13]C[-4]"><strong>0.0884121</strong></td>
</tr>
<tr>
<td style="width: 253.636px;" data-sheets-value='{"1":2,"2":"LG Corp SO"}'>Total shares</td>
<td style="text-align: right; width: 214.545px;" data-sheets-value='{"1":3,"3":157300992.6783149}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula="=NAV!R[-1]C[1]">157,300,993</td>
<td style="text-align: right; width: 213.636px;" data-sheets-value='{"1":3,"3":76280691.6084255}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula="=NAV!R[-1]C[6]">76,280,692</td>
</tr>
<tr>
<td style="width: 253.636px;" data-sheets-value='{"1":2,"2":"LG Corp base price"}'><strong>Base price</strong></td>
<td style="text-align: right; width: 214.545px;" data-sheets-value='{"1":3,"3":126500.00000000001}' data-sheets-numberformat='{"1":4,"2":"[$₩-412]#,##0"}' data-sheets-formula="=R[-3]C[0]*R[-2]C[0]/R[-1]C[0]*1000000000"><strong>₩126,500</strong></td>
<td style="text-align: right; width: 213.636px;" data-sheets-value='{"1":3,"3":25300}' data-sheets-numberformat='{"1":4,"2":"[$₩-412]#,##0"}' data-sheets-formula="=R[-3]C[0]*R[-2]C[0]/R[-1]C[0]*1000000000"><strong>₩25,300</strong></td>
</tr>
<tr>
<td style="width: 253.636px;" data-sheets-value='{"1":2,"2":"- Market cap"}'><strong>- Market cap</strong></td>
<td style="text-align: right; width: 214.545px;" data-sheets-value='{"1":3,"3":19898.575573806836}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[-1]C[0]*R4C[0]/1000000000"><strong>₩19,898.6B</strong></td>
<td style="text-align: right; width: 213.636px;" data-sheets-value='{"1":3,"3":1929.901497693165}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[-1]C[0]*R4C[0]/1000000000"><strong>₩1,929.9B</strong></td>
</tr>
<tr>
<td style="width: 253.636px;" data-sheets-value='{"1":2,"2":"Opening price at 50%"}'>Opening price at 50%</td>
<td style="text-align: right; width: 214.545px;" data-sheets-value='{"1":3,"3":63250.00000000001}' data-sheets-numberformat='{"1":4,"2":"[$₩-412]#,##0"}' data-sheets-formula="=R[-2]C[0]/2">₩63,250</td>
<td style="text-align: right; width: 213.636px;" data-sheets-value='{"1":3,"3":12650}' data-sheets-numberformat='{"1":4,"2":"[$₩-412]#,##0"}' data-sheets-formula="=R[-2]C[0]/2">₩12,650</td>
</tr>
<tr>
<td style="width: 253.636px;" data-sheets-value='{"1":2,"2":"- Market cap"}'>- Market cap</td>
<td style="text-align: right; width: 214.545px;" data-sheets-value='{"1":3,"3":9949.287786903418}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[-1]C[0]*R4C[0]/1000000000">₩9,949.3B</td>
<td style="text-align: right; width: 213.636px;" data-sheets-value='{"1":3,"3":964.9507488465825}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[-1]C[0]*R4C[0]/1000000000">₩965.0B</td>
</tr>
<tr>
<td style="width: 253.636px;" data-sheets-value='{"1":2,"2":"Opening price at 200%"}'>Opening price at 200%</td>
<td style="text-align: right; width: 214.545px;" data-sheets-value='{"1":3,"3":253000.00000000003}' data-sheets-numberformat='{"1":4,"2":"[$₩-412]#,##0"}' data-sheets-formula="=R[-4]C[0]*2">₩253,000</td>
<td style="text-align: right; width: 213.636px;" data-sheets-value='{"1":3,"3":50600}' data-sheets-numberformat='{"1":4,"2":"[$₩-412]#,##0"}' data-sheets-formula="=R[-4]C[0]*2">₩50,600</td>
</tr>
<tr>
<td style="width: 253.636px;" data-sheets-value='{"1":2,"2":"- Market cap"}'>- Market cap</td>
<td style="text-align: right; width: 214.545px;" data-sheets-value='{"1":3,"3":39797.15114761367}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[-1]C[0]*R4C[0]/1000000000">₩39,797.2B</td>
<td style="text-align: right; width: 213.636px;" data-sheets-value='{"1":3,"3":3859.80299538633}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[-1]C[0]*R4C[0]/1000000000">₩3,859.8B</td>
</tr>
<tr><td colspan="3" rowspan="1" style="width: 723.636px;" data-sheets-value='{"1":2,"2":"Source: KRX"}'>Source: KRX</td></tr>
</tbody>
</table>
</div><hr><h2><strong>Pre-spinoff NAV</strong></h2><p><strong>The last closing price before the suspension kicked in on April 29 gives a 52.41% discount to its NAV.</strong> It is still a harsh discount, but at the same time, it is a substantial improvement from a +60% NAV discount not that long ago.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"NAV (₩B)"}' data-sheets-note="Sang Hyun Park: Cases when a company's net cash position and the value of its publically traded interests are worth more than its market cap create the opportunity of a stub trade, in which investors can take a view that the company's core business will rise by shorting the minority stakes whilst going long the underlying. Such an opportunity has arisen in the wake of the Alibaba listing which has seen early investing company Yahoo trade at a discount to the value of its stake in Alibaba.">Pre-spinoff NAV (₩B)</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Value of listed holdings"}'>Value of listed holdings</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":41626.31228257122}' data-sheets-numberformat='[null,2,"#,##0.0"]' data-sheets-formula="=SUM(R[34]C[2]:R[42]C[2])">₩41,626.3B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - % of Holdco market cap"}'>- % of Holdco market cap</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1.9069728110771385}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=R[-1]C[0]/((R[-12]C[0]*R[-15]C[0])/1000000000)">190.70%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Value of unlisted holdings"}'>Value of unlisted holdings</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2631.699}' data-sheets-numberformat='[null,2,"#,##0.0"]' data-sheets-formula="=SUM(R[41]C[2]:R[42]C[2])">₩2,631.7B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Stub value"}'>Stub value</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-22429.53421107122}' data-sheets-numberformat='[null,2,"#,##0.0"]' data-sheets-formula="=(R[-14]C[0]*R[-17]C[0]/1000000000)-R[-3]C[0]-R[-1]C[0]">-₩22,429.5₩</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Stub value per share"}'>Stub value per share</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-129983.23558747172}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=R[-1]C[0]*1000000000/R[-18]C[0]">-₩129,983</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Value of operating assets"}'>Value of operating assets</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0}' data-sheets-numberformat='[null,2,"#,##0.0"]' data-sheets-formula="=SUM(R[60]C[2])">0.0</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"GAV"}'><strong>GAV</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44258.01128257122}' data-sheets-numberformat='[null,2,"#,##0.0"]' data-sheets-formula="=R[-6]C[0]+R[-4]C[0]+R[-1]C[0]"><strong>₩44,258.0B</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"GAV per share"}'>GAV per share</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":256483.23558747175}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=R[-1]C[0]/R[-11]C[0]*1000000000">₩256,483</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Discount to GAV (excl. treasury shares)"}'>Discount to GAV (excl. treasury shares)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.5067903767267545}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[-1]C[0]-R[-19]C[0])/R[-1]C[0]">50.68%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Holdco net cash/debt (de-consolidated)"}'>Holdco net cash/debt</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1941.8010390000002}' data-sheets-numberformat='[null,2,"#,##0.0"]' data-sheets-formula="=R[57]C[2]">₩1,941.8B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Value of pref shares"}'>Value of pref shares</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":329.8103615}' data-sheets-numberformat='[null,2,"#,##0.0"]' data-sheets-formula="=(R[-20]C[0]*R[-17]C[0])/1000000000">₩329.8B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"NAV"}'><strong>NAV</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":45870.00196007122}' data-sheets-numberformat='[null,2,"#,##0.0"]' data-sheets-formula="=R[-5]C[0]+R[-2]C[0]-R[-1]C[0]"><strong>₩45,870.0B</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"NAV per share (excl. treasury shares)"}'>NAV per share (excl. treasury shares)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":265825.0151369938}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=R[-1]C[0]/R[-16]C[0]*1000000000">₩265,825</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Discount to NAV"}'><strong>Discount to NAV</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.5241230403586817}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[-1]C[0]-R[-24]C[0])/R[-1]C[0]"><strong>52.41%</strong></td>
</tr>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Source: KRX &amp; DART","6":1}'>Source: KRX &amp; DART</td></tr>
</tbody>
</table>

LG Corp is currently in trade suspension. It will resume trading on May 27.





LG Corp (003550) spinoff schedule

Trade suspension begins
4/29/21


Trade suspension ends
5/26/21


Re-listing
5/27/21

Source: KRX

The re-listing day base price is calculated as follows:
Base price: (Market cap on the last trading day X Split ratio) / total shares
Opening price band: 50% &lt; Base price &lt; 200%

At the current market cap, LG Corp's base price comes at ₩126,500, giving a ₩19.90T market cap. LX Holdings' base price arrives at ₩25,300 with a ₩1.93T market cap.








Re-listing day base price calculation
LG Corp
LX Holdings


Combined market cap on the last trading day
₩21,828.5B
₩21,828.5B


Split ratio
0.9115879
0.0884121


Total shares
157,300,993
76,280,692


Base price
₩126,500
₩25,300


- Market cap
₩19,898.6B
₩1,929.9B


Opening price at 50%
₩63,250
₩12,650


- Market cap
₩9,949.3B
₩965.0B


Opening price at 200%
₩253,000
₩50,600


- Market cap
₩39,797.2B
₩3,859.8B

Source: KRX


Pre-spinoff NAVThe last closing price before the suspension kicked in on April 29 gives a 52.41% discount to its NAV. It is still a harsh discount, but at the same time, it is a substantial improvement from a +60% NAV discount not that long ago.





Pre-spinoff NAV (₩B)

Value of listed holdings
₩41,626.3B


- % of Holdco market cap
190.70%


Value of unlisted holdings
₩2,631.7B


Stub value
-₩22,429.5₩


Stub value per share
-₩129,983


Value of operating assets
0.0


GAV
₩44,258.0B


GAV per share
₩256,483


Discount to GAV (excl. treasury shares)
50.68%


Holdco net cash/debt
₩1,941.8B


Value of pref shares
₩329.8B


NAV
₩45,870.0B


NAV per share (excl. treasury shares)
₩265,825


Discount to NAV
52.41%

Source: KRX &amp; DART



LG Holdings Post-Spinoff NAV Discounts & Stub Synthetic Pair Trading

Equity L/S Analyst | Forensic Accounting | India, Yellowstone Equity

Ankit Agrawal, CFA

Equity L/S Analyst | Forensic Accounting | India

Quantitative Analysis

<p>Since our Original on <a href="https://www.smartkarma.com/insights/asia-buyback-forecasting-which-companies-are-likely-to-raise-cut-buybacks" target="_blank" data-smartkarma-citation="insights:47196" rel="noopener">Asia Buyback Forecasting | Which Companies Are Likely to Raise/Cut Buybacks?</a>, published on Jan 31 2021, this is our first quarterly update. Below we provide updated results from our models based on latest reported fiscal year-end financials. We also discuss companies where there is notable change in our conviction level based on updated data.</p>
<p>At the webinar in March, there was also a request for conducting price movement analysis corresponding to our buyback raise/cut outlook for our back-test results. This analysis is now available. Our results show a decent outperformance/underperformance corresponding to buyback raise/cut prediction, suggesting that users of our models will benefit from guiding their investment decisions based on our buyback raise/cut outlook.</p>

Since our Original on Asia Buyback Forecasting | Which Companies Are Likely to Raise/Cut Buybacks?, published on Jan 31 2021, this is our first quarterly update. Below we provide updated results from our models based on latest reported fiscal year-end financials. We also discuss companies where there is notable change in our conviction level based on updated data.
At the webinar in March, there was also a request for conducting price movement analysis corresponding to our buyback raise/cut outlook for our back-test results. This analysis is now available. Our results show a decent outperformance/underperformance corresponding to buyback raise/cut prediction, suggesting that users of our models will benefit from guiding their investment decisions based on our buyback raise/cut outlook.

Asia Buyback Forecasting | Quarterly Update 1.0

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

<div class="content-highlight"><p>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.</p></div><p>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. </p><p>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. </p><div class="content-highlight">
<p>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).</p>
<p>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.  </p>
</div><p>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. </p>

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

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)

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Asia Buyback Forecasting | Quarterly Update 1.0

This is our first quarterly update since our Original on Buyback Forecasting. We provide updated results based on latest year-end financials.

Ankit Agrawal, CFA

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

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