Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<div>
<p>This week in StubWorld ...</p>
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<div class="content-highlight">
<p>With the short-selling ban in Korea lifted this past Monday, this insight takes a cursory look at those Holdcos moving, and some that may yet have more to move. </p>
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<p>Preceding my comments on Korean stubs are the weekly setup/unwind tables for Asia-Pacific Holdcos.</p>
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<p>These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.</p>
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This week in StubWorld ...




With the short-selling ban in Korea lifted this past Monday, this insight takes a cursory look at those Holdcos moving, and some that may yet have more to move. 




Preceding my comments on Korean stubs are the weekly setup/unwind tables for Asia-Pacific Holdcos.



These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.


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.

<p>The split ratio (Infracore) is 0.6895026. The one to merge with Heavy takes 0.6895026.</p><p>Then, the merger ratio is 0.6866211, making the swap ratio 0.4734270.</p><p>The remaining 0.3104974 of Infracore will remain on KOSPI with the ticker 042670.</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":"Swap ratio"}'>Swap ratio</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Doosan Infracore split ratio"}'>Doosan Infracore split ratio</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.6895026}' data-sheets-numberformat='{"1":2,"2":"#,##0.0000000","3":1}'>0.6895026</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Merger ratio with Doosan Heavy"}'>Merger ratio with Doosan Heavy</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.6866211}' data-sheets-numberformat='{"1":2,"2":"#,##0.0000000","3":1}'>0.6866211</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap ratio with Doosan Heavy"}'>Swap ratio with Doosan Heavy</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.47342703366485994}' data-sheets-numberformat='{"1":2,"2":"#,##0.0000000","3":1}' data-sheets-formula="=R[-2]C[0]*R[-1]C[0]">0.4734270</td>
</tr>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><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":"Swap ratio based on the merger price"}'>Swap ratio based on the merger price</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Name"}'>Name</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Doosan Infracore Co Ltd"}' data-sheets-numberformat='{"1":2,"2":"#,##0.0000000","3":1}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>Doosan Infracore Co Ltd</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Ticker"}'>Ticker</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"042670"}' data-sheets-numberformat='{"1":2,"2":"#,##0.0000000","3":1}' data-sheets-formula='="042670"'>042670</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Merger price"}'>Merger price</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":7827}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0"}'>₩7,827</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Merger price after split"}'>Post-split merger price</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":5396.7368502}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0"}' data-sheets-formula="=R[-1]C[0]*R[-9]C[0]">₩5,397</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Name"}'>Name</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Doosan Heavy Industries Constrctn Co Ltd"}' data-sheets-numberformat='{"1":2,"2":"#,##0.0000000","3":1}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>Doosan Heavy Industries Constrctn Co Ltd</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Ticker"}'>Ticker</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"034020"}' data-sheets-numberformat='{"1":2,"2":"#,##0.0000000","3":1}' data-sheets-formula='="034020"'>034020</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Merger price"}'>Merger price</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":11400}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0"}'>₩11,400</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap ratio"}'>Merger price-based swap ratio</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.47342703366485994}' data-sheets-numberformat='{"1":2,"2":"#,##0.0000000","3":1}' data-sheets-formula="=R[-11]C[0]">0.4734270</td>
</tr>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><p>Infracore soared 21.82% yesterday. Heavy? It had a 2.59% gain.</p><p>As a result, assuming the market value of Infracore's other 0.3104974 remains unchanged, the current market price-based swap ratio is at a +20.9% disparity.</p><table class="table table-striped">
<colgroup>
<col width="200">
<col width="200">
</colgroup>
<tbody>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Swap ratio based on the market price"}'>Swap ratio based on the market price</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Name"}'>Name</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Doosan Infracore Co Ltd"}' data-sheets-numberformat='{"1":2,"2":"#,##0.0000000","3":1}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>Doosan Infracore Co Ltd</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Ticker"}'>Ticker</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"042670"}' data-sheets-numberformat='{"1":2,"2":"#,##0.0000000","3":1}' data-sheets-formula='="042670"'>042670</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Market price"}'>Market price</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":9880}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0"}' data-sheets-formula='=googlefinance(R[-1]C[0], "price")'>₩9,880</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Market price after split"}'>Post-split market price</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":6812.285688}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0"}' data-sheets-formula="=R[-1]C[0]*R[-20]C[0]">₩6,812</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Name"}'>Name</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Doosan Heavy Industries Constrctn Co Ltd"}' data-sheets-numberformat='{"1":2,"2":"#,##0.0000000","3":1}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>Doosan Heavy Industries Constrctn Co Ltd</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Ticker"}'>Ticker</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"034020"}' data-sheets-numberformat='{"1":2,"2":"#,##0.0000000","3":1}' data-sheets-formula='="034020"'>034020</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Market price"}'>Market price</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":11900}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0"}' data-sheets-formula='=googlefinance(R[-1]C[0], "price")'>₩11,900</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap ratio"}'><strong>Market price-based swap ratio</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.572460982184874}' data-sheets-numberformat='{"1":2,"2":"#,##0.0000000","3":1}' data-sheets-formula="=R[-4]C[0]/R[-1]C[0]"><strong>0.5724610</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Disparity"}'><strong>- Disparity</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.20918524181726464}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=(R[-1]C[0]-R[-12]C[0])/R[-12]C[0]"><strong>+20.92%</strong></td>
</tr>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><p>Infracore is now 16.8% above the appraisal rights exercise price. Heavy is +3.8%.</p><p>The ceiling for potential cancellation is ₩300B for Infracore and ₩200B for Heavy.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Entity"}'>Entity</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Purchase rights price"}'>Purchase rights price</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"% to the current price"}'>% to the current price</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Infracore"}'>Infracore</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":8224}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0"}'>₩8,224</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.16761133603238867}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=(R[0]C[-1]-R[-10]C[-1])/R[-10]C[-1]">16.76%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Heavy"}'>Heavy</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":11447}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0"}'>₩11,447</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.038067226890756305}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=(R[0]C[-1]-R[-7]C[-1])/R[-7]C[-1]">3.81%</td>
</tr>
<tr><td colspan="3" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table>

The split ratio (Infracore) is 0.6895026. The one to merge with Heavy takes 0.6895026.Then, the merger ratio is 0.6866211, making the swap ratio 0.4734270.The remaining 0.3104974 of Infracore will remain on KOSPI with the ticker 042670.





Swap ratio

Doosan Infracore split ratio
0.6895026


Merger ratio with Doosan Heavy
0.6866211


Swap ratio with Doosan Heavy
0.4734270

Source: DART







Swap ratio based on the merger price

Name
Doosan Infracore Co Ltd


Ticker
042670


Merger price
₩7,827


Post-split merger price
₩5,397


Name
Doosan Heavy Industries Constrctn Co Ltd


Ticker
034020


Merger price
₩11,400


Merger price-based swap ratio
0.4734270

Source: DART

Infracore soared 21.82% yesterday. Heavy? It had a 2.59% gain.As a result, assuming the market value of Infracore's other 0.3104974 remains unchanged, the current market price-based swap ratio is at a +20.9% disparity.





Swap ratio based on the market price

Name
Doosan Infracore Co Ltd


Ticker
042670


Market price
₩9,880


Post-split market price
₩6,812


Name
Doosan Heavy Industries Constrctn Co Ltd


Ticker
034020


Market price
₩11,900


Market price-based swap ratio
0.5724610


- Disparity
+20.92%

Source: DART

Infracore is now 16.8% above the appraisal rights exercise price. Heavy is +3.8%.The ceiling for potential cancellation is ₩300B for Infracore and ₩200B for Heavy.







Entity
Purchase rights price
% to the current price


Infracore
₩8,224
16.76%


Heavy
₩11,447
3.81%

Source: DART



Doosan Split/Merger: Infracore in Overshooting

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

<p>On 19 March, <a href="https://www.smartkarma.com/entities/doosan-infracore-co-ltd" target="_blank" data-smartkarma-citation="entities:3982:1" rel="noopener">Doosan Infracore (042670 KS)</a> announced that it will split the operating division (surviving company) and the investment division (Newco company that is being split off). The split off Newco will then be merged with <a href="https://www.smartkarma.com/entities/doosan-heavy-industries-construction" target="_blank" data-smartkarma-citation="entities:7389:1" rel="noopener">Doosan Heavy Industries &amp; Construction (034020 KS)</a>. </p><p><strong>Need to Repay Doosan Infracore Shorts - </strong>As of 18 March, there were 12.56 million shares shorts outstanding for Doosan Infracore, representing 3.4% of total outstanding shares. At the current price of 9,880 won, this represents 124 billion won. There were 61 million shares of Doosan Infracore that were traded on Monday, 21 March and probably a good chunk of these shorted shares were covered. According to Korean regulations, prior to the Newco being formed, the investors that were shorted on the company need to repay them and this was one of the main reasons why Doosan Infracore's shares jumped 21% on Monday. </p><div class="content-highlight"><p><em>The Insight has been marked Bullish since we expect the split off and merger of Doosan Infracore's investment assets to DHIC is likely to result in a higher re-rating of the company's core operating business (construction equipment). There are also signs that the overseas construction business is rebounding in China, which should have a positive impact on Doosan Infracore. In addition, the creation of the Newco (and the getting rid of the previous company's shareholders' list) results in the need for the Doosan Infracore's shorts to cover. </em></p></div>

On 19 March, Doosan Infracore (042670 KS) announced that it will split the operating division (surviving company) and the investment division (Newco company that is being split off). The split off Newco will then be merged with Doosan Heavy Industries &amp; Construction (034020 KS). Need to Repay Doosan Infracore Shorts - As of 18 March, there were 12.56 million shares shorts outstanding for Doosan Infracore, representing 3.4% of total outstanding shares. At the current price of 9,880 won, this represents 124 billion won. There were 61 million shares of Doosan Infracore that were traded on Monday, 21 March and probably a good chunk of these shorted shares were covered. According to Korean regulations, prior to the Newco being formed, the investors that were shorted on the company need to repay them and this was one of the main reasons why Doosan Infracore's shares jumped 21% on Monday. The Insight has been marked Bullish since we expect the split off and merger of Doosan Infracore's investment assets to DHIC is likely to result in a higher re-rating of the company's core operating business (construction equipment). There are also signs that the overseas construction business is rebounding in China, which should have a positive impact on Doosan Infracore. In addition, the creation of the Newco (and the getting rid of the previous company's shareholders' list) results in the need for the Doosan Infracore's shorts to cover. 

Doosan Infracore: Investco Split Off & Merger Ratio Announced

Hyundai Construction Equipment / Event-Driven

<p>It was announced on 10 December that Hyundai Heavy Industries Group has been selected as the <a href="https://finance.naver.com/news/news_read.nhn?article_id=0004805146&amp;office_id=018&amp;mode=LSS2D&amp;type=0&amp;section_id=101&amp;section_id2=258&amp;section_id3=&amp;date=20201210&amp;page=2" target="_blank" rel="noopener">preferred bidder</a> to acquire the 35.4% controlling stake of <a href="https://www.smartkarma.com/entities/doosan-infracore-co-ltd" target="_blank" data-smartkarma-citation="entities:3982:1" rel="noopener">Doosan Infracore (042670 KS), </a>held by <a href="https://www.smartkarma.com/entities/doosan-heavy-industries-construction" target="_blank" data-smartkarma-citation="entities:7389:1" rel="noopener">Doosan Heavy Industries &amp; Construction (034020 KS)</a>. Doosan Infracore currently has a market cap of 1.9 trillion won. Hence, a 35.4% stake in the company would be worth 663 billion won. It has been reported that the consortium led by Hyundai Heavy Industries and KDB Investment bid about 900 billion won for Doosan Infracore. Hence, the potential acquisition price would be about 36% premium to current price of Doosan Infracore (8,670 won). The final acquisition price is not yet determined so this is subject to change. </p><div class="content-highlight"><p>In our view, there may be a bigger positive impact on Hyundai Construction Equipment if the HHI Group ends up acquiring Doosan Infracore. There are two major reasons. First, there are expected to some synergies between Doosan Infracore and Hyundai Construction Equipment that could have a bigger positive impact on Hyundai Construction Equipment. Second, the valuation gap between Doosan Infracore and Hyundai Construction Equipment may be reduced.</p></div>

It was announced on 10 December that Hyundai Heavy Industries Group has been selected as the preferred bidder to acquire the 35.4% controlling stake of Doosan Infracore (042670 KS), held by Doosan Heavy Industries &amp; Construction (034020 KS). Doosan Infracore currently has a market cap of 1.9 trillion won. Hence, a 35.4% stake in the company would be worth 663 billion won. It has been reported that the consortium led by Hyundai Heavy Industries and KDB Investment bid about 900 billion won for Doosan Infracore. Hence, the potential acquisition price would be about 36% premium to current price of Doosan Infracore (8,670 won). The final acquisition price is not yet determined so this is subject to change. In our view, there may be a bigger positive impact on Hyundai Construction Equipment if the HHI Group ends up acquiring Doosan Infracore. There are two major reasons. First, there are expected to some synergies between Doosan Infracore and Hyundai Construction Equipment that could have a bigger positive impact on Hyundai Construction Equipment. Second, the valuation gap between Doosan Infracore and Hyundai Construction Equipment may be reduced.

Korea M&A Spotlight: HHI Group Selected As Preferred Bidder for Doosan Infracore

<p>In this insight, we highlight 26 Korean companies that are/may be seeking to find new owners through M&amp;As in 2021. Key sectors of M&amp;A in Korea in 2021 include consumer and industrial. We also provide a review of our M&amp;A research in 2020. We wrote 29 reports about the M&amp;As in 2020. The M&amp;A market in Korea is estimated to be about 35 trillion won in 2020, down 8% YoY. The local media have mentioned that the M&amp;A market in Korea could be nearly <a href="https://finance.naver.com/news/news_read.nhn?article_id=0004711778&amp;office_id=009&amp;mode=LSS2D&amp;type=0&amp;section_id=101&amp;section_id2=258&amp;section_id3=&amp;date=20201207&amp;page=3" target="_blank" rel="noopener">45 trillion won</a> in 2021, up 29% YoY, which would surpass the all-time high of 38 trillion won in 2019.  </p>

In this insight, we highlight 26 Korean companies that are/may be seeking to find new owners through M&amp;As in 2021. Key sectors of M&amp;A in Korea in 2021 include consumer and industrial. We also provide a review of our M&amp;A research in 2020. We wrote 29 reports about the M&amp;As in 2020. The M&amp;A market in Korea is estimated to be about 35 trillion won in 2020, down 8% YoY. The local media have mentioned that the M&amp;A market in Korea could be nearly 45 trillion won in 2021, up 29% YoY, which would surpass the all-time high of 38 trillion won in 2019.  

Review of Our M&A Research in 2020 & Korea M&A Market Outlook in 2021: What’s For Sale?

South Korea

Doosan Enerbility Co., Ltd. manufactures and distributes construction machines. The Company produces gas turbines, engines, turbine generators, boilers, power plant equipment, and other related products. Doosan Enerbility also offers energy solutions for thermal power, nuclear power, and renewable energy.

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Doosan Enerbility (034020 KS)

StubWorld: Shorting Korean Stubs

With the short-selling ban in Korea lifted this past Monday, this insight takes a cursory look at those Holdcos moving, and some that may yet have...

David Blennerhassett

Doosan Split/Merger: Infracore in Overshooting

This post details the Doosan split/merger procedure. Also, it looks into the pair trade opportunities with Infracore and Heavy.

Sanghyun Park

Doosan Infracore: Investco Split Off & Merger Ratio Announced

We expect the split off and merger of Doosan Infracore's investment assets to DHIC is likely to result in a higher re-rating of the company's core...

Douglas Kim

Korea M&A Spotlight: HHI Group Selected As Preferred Bidder for Doosan Infracore

It was announced on 10 December that Hyundai Heavy Industries Group has been selected as the preferred bidder to acquire the 35.4% controlling...

Douglas Kim

Review of Our M&A Research in 2020 & Korea M&A Market Outlook in 2021: What’s For Sale?

In this insight, we highlight 26 Korean companies that are/may be seeking to find new owners through M&As in 2021. We also provide a review of our...

Douglas Kim

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