Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

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<p>This week in StubWorld ...</p>
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<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%.


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<p>On 26 November, <a href="https://www.smartkarma.com/entities/lg-corp" target="_blank" data-smartkarma-citation="entities:6653:1" rel="noopener">LG Corp (003550 KS)</a> officially announced it would be splitting itself into two - the core electronics, chemicals, and telecoms business will stay in LG Corp, with the remaining non-core holdings transferred to NewCo, a new holding company, and subsequently spin-off to LG Corp shareholders.</p>
<p><a href="https://www.smartkarma.com/profiles/douglas-kim" target="_blank" data-smartkarma-citation="accounts:342" rel="noopener">Douglas Kim</a> discussed this transaction beginning with <em><a href="https://skr.ma/BZgGp" target="_blank" rel="noopener">LG Group Announces the Formation of LG NewCo &amp; Split of 4 Companies from LG Corp</a></em>, and I added my thoughts in <em><a href="https://skr.ma/Tdpxs" target="_blank" rel="noopener">2021 High Conviction: LG Corp's Decade-Low Stub</a></em>.</p>
<p>The benefits of the demerger are projected to be two-fold. The NewCo is expected to improve the competitiveness and efficiency of the business (potentially re-rating the company); but also as an interim step to facilitate share swaps with the family with the two holding companies. This has been speculated since Koo Kwang-mo was inaugurated as chairman in 2018. NewCo's board of directors will be headed by Koo Bon-joon, the uncle of Kwang-Mo. </p>
<p>The remaining Holdco will focus on steady earnings from its core operations (electronics, chemicals, and telecom), and via new opportunities. LG provided further rationale for the spin-off in its 4Q20 results - that is attached at the bottom of this insight.</p>
<p>It was noted, however, that LG Corp would maintain 91.5% of the group's assets - ₩9,779.8bn - as at 3Q20. This raises the question: just how much value can be unlocked by via spinning off ~8%?</p>
<p>The NAV and implied stub <em>widened</em> after the demerger announcement, and following a tepid reversal, narrowed around the time <a href="https://www.smartkarma.com/entities/lg-electronics-inc" target="_blank" data-smartkarma-citation="entities:8814:1" rel="noopener">LG Electronics (066570 KS)</a> announced a US$1bn JV with Magna on the 22 December to make electric car gears.</p>
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<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/192/369/original/image_5243749941614909471522.png?1614909471" class="editor-image img-responsive" data-smartkarma-image-id="192369"></figure>
<p style="text-align: left;">Source: my calcs, CapIQ</p>
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<p>On the 15 December, US-headquartered Whitebox said:</p>
<blockquote>
<p>The spin-off does nothing to address LG’s most pressing issue, which is the unprecedented discount at which the company trades relative to its assets and, accordingly, inferior return to shareholders.</p>
<p>Despite clearly favorable alternatives, the board (of LG) has unanimously approved a plan that, in our view, sacrifices minority shareholder return in order to resolve a family succession issue.</p>
</blockquote>
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<p>Whitebox has now issued a 30-page PowerPoint detailing its objection to the demerger. It's worth a read.</p>
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<p>More below the fold.</p>
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<p></p>
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On 26 November, LG Corp (003550 KS) officially announced it would be splitting itself into two - the core electronics, chemicals, and telecoms business will stay in LG Corp, with the remaining non-core holdings transferred to NewCo, a new holding company, and subsequently spin-off to LG Corp shareholders.
Douglas Kim discussed this transaction beginning with LG Group Announces the Formation of LG NewCo &amp; Split of 4 Companies from LG Corp, and I added my thoughts in 2021 High Conviction: LG Corp's Decade-Low Stub.
The benefits of the demerger are projected to be two-fold. The NewCo is expected to improve the competitiveness and efficiency of the business (potentially re-rating the company); but also as an interim step to facilitate share swaps with the family with the two holding companies. This has been speculated since Koo Kwang-mo was inaugurated as chairman in 2018. NewCo's board of directors will be headed by Koo Bon-joon, the uncle of Kwang-Mo. 
The remaining Holdco will focus on steady earnings from its core operations (electronics, chemicals, and telecom), and via new opportunities. LG provided further rationale for the spin-off in its 4Q20 results - that is attached at the bottom of this insight.
It was noted, however, that LG Corp would maintain 91.5% of the group's assets - ₩9,779.8bn - as at 3Q20. This raises the question: just how much value can be unlocked by via spinning off ~8%?
The NAV and implied stub widened after the demerger announcement, and following a tepid reversal, narrowed around the time LG Electronics (066570 KS) announced a US$1bn JV with Magna on the 22 December to make electric car gears.



Source: my calcs, CapIQ


On the 15 December, US-headquartered Whitebox said:

The spin-off does nothing to address LG’s most pressing issue, which is the unprecedented discount at which the company trades relative to its assets and, accordingly, inferior return to shareholders.
Despite clearly favorable alternatives, the board (of LG) has unanimously approved a plan that, in our view, sacrifices minority shareholder return in order to resolve a family succession issue.



Whitebox has now issued a 30-page PowerPoint detailing its objection to the demerger. It's worth a read.

More below the fold.




LG Corp (003550 KS): Whitebox States Its Case

Korea / Special Sits, Pairs, Index Rebalancing, Clepsydra Capital

Sanghyun Park

Korea / Special Sits, Pairs, Index Rebalancing

Equity Capital Markets

Doosan Fuel Cell   / Equity Capital Markets

<p>The major shareholder put up a total of 19.7% stake in block deals.</p><p>But only half of the target went through despite a hefty discount. That is, 5.6M shares out of 10.9M found buyers. 4M went to overseas institutions, and the remaining 1.6M found local investors.</p><p>The offering price was fixed at the lower end of the suggested price band (₩35,465), so the final discount was 18% to the previous closing price.</p><p>The major shareholder is now left with 5.3M shares (9.6%).</p><table class="table table-striped">
<colgroup>
<col width="300">
<col width="300">
</colgroup>
<tbody>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Overview"}'>Block deal terms &amp; outcome</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Date"}'>Date</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44109}' data-sheets-numberformat='{"1":5,"2":"mmmm d, yyyy","3":1}'>October 5, 2020</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Target"}'>Target</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Doosan Fuel Cell Co Ltd"}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>Doosan Fuel Cell 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":"336260"}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula='="336260"'>336260</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Seller"}'>Seller</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"The major shareholder"}'>The major shareholder</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Offer size"}'>Offer size</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":10927270}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'>10,927,270</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - % of SO"}'>- % of SO</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.19691000744840959}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula='=R[-1]C[0]/googlefinance(R[-3]C[0], "shares")'>19.69%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Value"}'>Value (₩B)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":387.53563055}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula="=R[-2]C[0]*R[4]C[0]/1000000000">387.5</td>
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<tr>
<td data-sheets-value='{"1":2,"2":"Last close"}'>Last close</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":43250}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}'>₩43,250</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Indicative price - ceiling"}'>Indicative price - ceiling</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":37628}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}'>₩37,628</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - % to last close"}'>- % to the last close</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.1299884393063584}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=(R[-2]C[0]-R[-1]C[0])/R[-2]C[0]">13.00%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Indicative price - Floor"}'>Indicative price - Floor</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":35465}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}'>₩35,465</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - % to last close"}'>- % to the last close</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.18}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=(R[-4]C[0]-R[-1]C[0])/R[-4]C[0]">18.00%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Final price"}'><strong>Final price</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":35465}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}'><strong>₩35,465</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Final quantity (sold)"}'><strong>Final quantity (sold)</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":5600000}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'><strong>5,600,000</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Overseas"}'><strong>- Overseas</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":4000000}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'><strong>4,000,000</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Local"}'><strong>- Local</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1600000}' data-sheets-numberformat='[null,2,"#,##0",1]' data-sheets-formula="=R[-2]C[0]-R[-1]C[0]"><strong> 1,600,000</strong></td>
</tr>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Source: Hankyung &amp; FnGuide"}'><em>Source: Hankyung &amp; FnGuide</em></td></tr>
</tbody>
</table>

The major shareholder put up a total of 19.7% stake in block deals.But only half of the target went through despite a hefty discount. That is, 5.6M shares out of 10.9M found buyers. 4M went to overseas institutions, and the remaining 1.6M found local investors.The offering price was fixed at the lower end of the suggested price band (₩35,465), so the final discount was 18% to the previous closing price.The major shareholder is now left with 5.3M shares (9.6%).





Block deal terms &amp; outcome

Date
October 5, 2020


Target
Doosan Fuel Cell Co Ltd


Ticker
336260


Seller
The major shareholder


Offer size
10,927,270


- % of SO
19.69%


Value (₩B)
387.5


Last close
₩43,250


Indicative price - ceiling
₩37,628


- % to the last close
13.00%


Indicative price - Floor
₩35,465


- % to the last close
18.00%


Final price
₩35,465


Final quantity (sold)
5,600,000


- Overseas
4,000,000


- Local
 1,600,000

Source: Hankyung &amp; FnGuide



Doosan Fuelcell: Block Deals Outcome on Rights Offer

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

<p>On Friday, September 4th, <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> announced a major rights offering worth 1.3 trillion won ($1.1 billion), representing 32% of its total market cap of 4.1 trillion won. The expected rights offering price of Doosan Heavy Industries is 10,700 won, which is <strong>34%</strong> lower than the current price of 16,100 won. The expected rights offering price of Doosan Fuel Cell is 34,200 won, which is <strong>42% lower</strong> than the current price of 59,300 won.</p>
<h3><strong>Korean New Deal Funds &amp; Big Market Discounts Drive Rights Offering </strong></h3>
<div class="content-highlight">
<p>The Korean New Deal Funds are likely to be one of the major drivers of both Doosan Heavy Industries and Doosan Fuel Cell. Although both companies are likely to be included in numerous New Deal Funds, Doosan Fuel Cell is viewed more as a pure-play. The market certainly seemed to favor Doosan Fuel Cell much better than Doosan Heavy Industries, reflecting the limit up position of the former stock.</p>
<p>Going forward, there are likely to be some interesting trading opportunities regarding the rights offerings of these two stocks, especially driven by the New Deal Funds and also due to the fact that the discounts on their expected rights offering prices and current prices are quite wide.</p>
</div>

On Friday, September 4th, Doosan Heavy Industries &amp; Construction (034020 KS) announced a major rights offering worth 1.3 trillion won ($1.1 billion), representing 32% of its total market cap of 4.1 trillion won. The expected rights offering price of Doosan Heavy Industries is 10,700 won, which is 34% lower than the current price of 16,100 won. The expected rights offering price of Doosan Fuel Cell is 34,200 won, which is 42% lower than the current price of 59,300 won.
Korean New Deal Funds &amp; Big Market Discounts Drive Rights Offering 

The Korean New Deal Funds are likely to be one of the major drivers of both Doosan Heavy Industries and Doosan Fuel Cell. Although both companies are likely to be included in numerous New Deal Funds, Doosan Fuel Cell is viewed more as a pure-play. The market certainly seemed to favor Doosan Fuel Cell much better than Doosan Heavy Industries, reflecting the limit up position of the former stock.
Going forward, there are likely to be some interesting trading opportunities regarding the rights offerings of these two stocks, especially driven by the New Deal Funds and also due to the fact that the discounts on their expected rights offering prices and current prices are quite wide.


Doosan Heavy Industries & Doosan Fuel Cell (Rights Offerings of $1.1 Billion & $0.3 Billion)

<p>Doosan Fuelcell also announced a new rights issuance of its own.</p>
<p>It offers 10M shares at an indicative price of ₩34,200, which puts the total value at ₩342bil.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/157/358/original/22.png?1599412597" class="editor-image img-responsive" data-smartkarma-image-id="157358"></figure>
<p>As a result, we have a capital increase rate of 13.92% with a 12.22% dilution.</p>
<p>The stockholder allocation is 93.73%, thereby giving a per share allocation of 0.130471.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/157/350/original/12.png?1599411438" class="editor-image img-responsive" data-smartkarma-image-id="157350"></figure>
<p>The first round pricing is a bit earlier than Heavy. It is October 9, followed by the ex-rights on October 13.</p>
<p>The subscription rights will be trading on November 20~26, followed by the final pricing on December 2.</p>
<p>The subscription falls on December 7, and the payment on December 15.</p>
<p>The new shares will get listed on December 29.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/157/351/original/13.png?1599411455" class="editor-image img-responsive" data-smartkarma-image-id="157351"></figure>
<p>This one also carries a usual 20% discount.</p>
<p>Everything else is pretty much in line with the local standard.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/157/352/original/15.png?1599411466" class="editor-image img-responsive" data-smartkarma-image-id="157352"></figure>

Doosan Fuelcell also announced a new rights issuance of its own.
It offers 10M shares at an indicative price of ₩34,200, which puts the total value at ₩342bil.

As a result, we have a capital increase rate of 13.92% with a 12.22% dilution.
The stockholder allocation is 93.73%, thereby giving a per share allocation of 0.130471.

The first round pricing is a bit earlier than Heavy. It is October 9, followed by the ex-rights on October 13.
The subscription rights will be trading on November 20~26, followed by the final pricing on December 2.
The subscription falls on December 7, and the payment on December 15.
The new shares will get listed on December 29.

This one also carries a usual 20% discount.
Everything else is pretty much in line with the local standard.


Doosan Fuelcell Rights Offer: Terms & Situation

South Korea

Doosan Co., Ltd operates as a diversified manufacturing and service company. The Company conducts electronic components production, logistics equipment manufacturing, information technology consulting, and other businesses. Doosan provides services worldwide.

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Doosan Corp (000150 KS)

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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...

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A ~64% discount to NAV - or 66% if using Whitebox's calcs - is non-sensical, and provides a good risk-adjusted return. The downside appears limited...

David Blennerhassett

Doosan Fuelcell: Block Deals Outcome on Rights Offer

???

Sanghyun Park

Doosan Heavy Industries & Doosan Fuel Cell (Rights Offerings of $1.1 Billion & $0.3 Billion)

The Korean New Deal Funds are likely to be one of the major drivers of both Doosan Heavy Industries and Doosan Fuel Cell. Although both companies...

Douglas Kim

Doosan Fuelcell Rights Offer: Terms & Situation

Doosan Fuelcell also announced a new rights issuance of its own. It offers 10M shares at an indicative price of ₩34,200, which puts the total value...

Sanghyun Park

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