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

Sanghyun Park

Korea / Special Sits, Pairs, Index Rebalancing

Event-Driven

We have another holdco conversion play here in Korea. Hyosung Corporation (004800 KS), which is KOSPI's 60th largest company by market cap (₩5.03tril) as of Jan 5, said in a regulatory filing yesterday that it would be split into 5 separate entities on June 1, 2018. Following is the list of the entities that will be newly created as a result of yesterday's spinoff decision. It is important to note that all of these 5 entities will be separately listed on July 13, 2018. Hyosung Corp will be a holdco which will be basically responsible for affiliate management. As for Hyosung TNC, it will take the textile and trading business. Hyosung's shipbuilding and construction will go to Hyosung Heavy Industries. The industrial materials business will go to Hyosung Advanced Materials, and lastly the chemical business will head to Hyosung Chemical.Entity nameBusiness role/areaSpinoff methodEntity statusSpinoff ratioHyosung CorporationHolding company - affiliate managementEquity spinoffSurviving entity(Holdco)0.3928289- Hyosung TNCTextile and tradingEquity SpinoffNew entity(Opco)0.1232345- Hyosung Heavy IndustriesConstruction and P&amp;I (power &amp; industrial systems)Equity SpinoffNew entity(Opco)0.2655246- Hyosung Advanced MaterialsIndustrial materialsEquity SpinoffNew entity(Opco)0.1275704- Hyosung ChemicalChemicalsEquity SpinoffNew entity(Opco)0.0908416Source: DARTThe official spinoff date is June 1, 2018. The divestiture will be finalized at OGM scheduled for Apr 27, 2018. Hyosung Corporation (004800 KS) shares will be suspended for trade from May 30 to July 12, 2018. All of these 5 entities will be re-listed on July 13, 2018.Important eventsBoard resolutionJan 3, 2018Divestiture finalization at EGMApr 27, 2018Reference date for new share allocationMay 31, 2018Divestiture registrationJune 1, 2018Stock trade suspension periodMay 30 - July 12, 2018Re-listing (for both entities)July 13, 2018Source: DARTSpinoff ratio was determined based on FY17 3Q financials. Spinoff ratio calculation is as follows:As of 3Q17 (₩)Before splitHyosung CorpHyosung TNCHyosung Heavy IndustriesHyosung Advanced MaterialsHyosung ChemicalTotal equity3,6261,424451972467332Split ratio1.0000000.39282890.12323450.26552460.1275704 0.0908416Split ratio calculation-1,424/3,626451/3,626972/3,626467/3,626332/3,626Source: DART, Sanghyun ParkAs of 3Q17 (₩)Before splitHyosung CorpHyosung TNCHyosung Heavy IndustriesHyosung Advanced MaterialsHyosung ChemicalCurrent assets1,874118367989175235Cash and cash equivalents43803400Account receivables8425620138670129Unbilled construction120--120--Other financial assets38311510Other current assets11641281415Inventories715815336310191Current tax assets-9----Non-current assets6,0411,5008261,5739891,265Long-term receivables256352918813Tangible assets3,4805393121,0223721,235Investment property4286126144152Intangible assets263783911Investments in subsidiaries and associates1,5867773181945517Other non-current financial assets2378131145-0Deferred tax assets---48-0Other non-current assets29241300Total assets7,9151,6181,1922,5621,1641,500Current liabilities3,125536811,139594667Account payables1,20946323463110267Overcharged construction88--88-Borrowings1,4500321295452381Other financial liabilities14-1410Current tax liabilities60-13271613Other current liabilities30362326176Non-current liabilities1,16414160451103501Long-term account payables201792061112Long-term borrowings676113561479Other non-current financial liabilities1--1-Net defined benefit liability7191133108Deferred tax liabilities13612440-21-Other non-current liabilities80007612Total liabilities4,2891947411,5906971,168Capital1766922472216Share issuance13151416927445317Retained earnings3,0923,092----Other capital components227-1,78813-2--Total equity3,6261,424451972467332Source: DARTCho Hyun-joon (current chairman and CEO and the former CEO Cho Seok-rae's eldest son) currently owns a 14.27% stake, and his younger brother Cho Hyun-sang owns a 12.21% stake. Their father Cho Seok-rae, who is currently serving as Hyosung's honorary chairman, still retains a 10.18% stake. The total shareholding owned by the major shareholders totals 37.48%. So, unlike the other major chaebols that have recently done a similar holdco conversion job, Hyosung's case is a bit different. That is, the major shareholders' actual controlling stake (37.48%) is relatively much more stable than the other chaebols. So, this isn't really about increasing the controlling stake %. I will touch this issue in more detail later in this insight. Among the local institutional investors, the NPS is the largest with a 10.33% stake, followed by KB Asset with a 1.45% stake and Samsung Asset with a 0.91% stake.Hyosung shareholding structureCho Hyun-joonChairman &amp; CEO14.27%Cho Hyun-sangYounger brother of Cho Hyun-joon12.21%Cho Seok-raeFather of Cho Hyun-joon10.18%5 affiliate persons0.81%Total owned by the major shareholders37.48%Treasury shares5.26%Source: FnGuideHyosung's major institutional investorsNPS10.33%KB Asset1.45%Samsung Asset0.91%Mirae Asset0.45%Hanwha Asset0.30%Bearing Asset0.28%Samsung Active Asset0.22%Asset Plus0.17%Shinhan BNP0.13%NH-Amundi0.13%Macquarie0.11%Source: FnGuideThis is what the Hyosung Group governance structure will look like after the demerger.Hyosung Group governance structure post demergerThe Cho family (the major shareholder)↓37.48%Hyosung Corp- Holdco (surviving entity)↓5.26%↓5.26%↓5.26%↓5.26%↓The major shareholders own a 37.48% stake in each of these four Opcos that will be de-merged and listed separately.Hyosung TNC- Opco (new entity)Hyosung Heavy Industries- Opco (new entity)Hyosung Advanced Materials- Opco (new entity)Hyosung Chemical- Opco (new entity)Other affiliated Opcos- Local: Nautilus Hyosung, Hyosung Capital, Hyosung I&amp;D, Hyosungitx Co Ltd (094280 KS) - 35%, Hyosung Good Springs, HIS, FMK- Overseas:  Holdings USA, Australia Resource, etc.↓↓↓↓Local subsidiariesIsland SevitChin Hung International (002780 KS) - 48%-Shinwha Intertek Corp (056700 KS) - 15%Overseas subsidiariesHyosung Europe SRL and 12 othersNantong Hyosung Transformer Co., Ltd. and 4 othersHyosung Chemical Fiber (Jiaxing) Co., Ltd. and 5 others-Source: Hyosung Corp, Sanghyun Park

Hyosung Corp Demerger - Procedures, Valuations & CEO Risk

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

<a href="https://www.smartkarma.com/entities/20712" target="_blank" data-smartkarma-citation="entities:20712:1">Hyosung Corporation (004800 KS)</a> announced on January 3rd that it will transform into a holding company and four subsidiaries. The company will spin-off four business units, including textile, heavy industries, industrial materials, and chemical. The Holdco will own a 39.3% stake in the new entity while the four subsidiaries will hold a combined 60.7% stake in the new entity. The potential change of Hyosung Corp into a Holdco structure has been speculated for many months but this was the first time that Hyosung has officially stated that it will change into a Holdco structure.Overall, we believe this transformation into a Holdco and four subsidiaries structure will likely to have a POSITIVE impact on Hyosung Corp since it will enable a greater corporate transparency and investors will be able to better value the separate businesses. Although there could be some short term selling from investors that are playing the "buying on rumor, sell on news" (of the conversion to the Holdco), the Hyosung Group is likely to benefit from this change to a Holdco structure in the long run. This transformation is very reminiscent of the breakup of Hyundai Heavy Industries Group to <a href="https://www.smartkarma.com/entities/24075" target="_blank" data-smartkarma-citation="entities:24075:1">Hyundai Robotics (267250 KS)</a> (Holdco) and its subsidiaries <a href="https://www.smartkarma.com/entities/10155" target="_blank" data-smartkarma-citation="entities:10155:1">Hyundai Heavy Industries (009540 KS)</a>, <a href="https://www.smartkarma.com/entities/24082" target="_blank" data-smartkarma-citation="entities:24082:1">Hyundai Electric &amp; Energy (267260 KS)</a>, <a href="https://www.smartkarma.com/entities/24120" target="_blank" data-smartkarma-citation="entities:24120:1">Hyundai Construction Equipment Corporation (267270 KS)</a>.  The following are the five new entities (including the split ratios) that will be created for Hyosung Group in this reorganization:<ul><li>Hyosung Corp - Holding company (0.3928)</li><li>Hyosung TNC - Textile &amp; trade (0.1232)</li><li>Hyosung Heavy Industries - Heavy industries and construction (0.2655)</li><li>Hyosung Advanced Materials - Materials related (0.1276)</li><li>Hyosung Chemicals - Chemicals (0.0908)</li></ul>

Hyosung Corporation (004800 KS) announced on January 3rd that it will transform into a holding company and four subsidiaries. The company will spin-off four business units, including textile, heavy industries, industrial materials, and chemical. The Holdco will own a 39.3% stake in the new entity while the four subsidiaries will hold a combined 60.7% stake in the new entity. The potential change of Hyosung Corp into a Holdco structure has been speculated for many months but this was the first time that Hyosung has officially stated that it will change into a Holdco structure.Overall, we believe this transformation into a Holdco and four subsidiaries structure will likely to have a POSITIVE impact on Hyosung Corp since it will enable a greater corporate transparency and investors will be able to better value the separate businesses. Although there could be some short term selling from investors that are playing the "buying on rumor, sell on news" (of the conversion to the Holdco), the Hyosung Group is likely to benefit from this change to a Holdco structure in the long run. This transformation is very reminiscent of the breakup of Hyundai Heavy Industries Group to Hyundai Robotics (267250 KS) (Holdco) and its subsidiaries Hyundai Heavy Industries (009540 KS), Hyundai Electric &amp; Energy (267260 KS), Hyundai Construction Equipment Corporation (267270 KS).  The following are the five new entities (including the split ratios) that will be created for Hyosung Group in this reorganization:Hyosung Corp - Holding company (0.3928)Hyosung TNC - Textile &amp; trade (0.1232)Hyosung Heavy Industries - Heavy industries and construction (0.2655)Hyosung Advanced Materials - Materials related (0.1276)Hyosung Chemicals - Chemicals (0.0908)

Hyosung's Transformation into a Holdco + Four Subsidiaries (Part 1)

Equity Research Analyst, Maritime sector, Drewry Maritime Financial Research

Ankush Kathuria CFA, FRM

Equity Research Analyst, Maritime sector

Maritime Sector, Equity & Credit Research

Drewry Maritime Financial Research

With no ties to other players in the shipping, finance or banking world, we provide a uniquely impartial view of the markets and companies we cover. Our parent organization, Drewry is a leading independent provider of research services to the maritime and shipping industry, employing over 100 professionals across an international network of offices in London, Delhi, Singapore and Shanghai. Combining our market-leading resources with seasoned sector expertise DFRS offers a highly differentiated and comprehensive range of investment and financial research services to lenders and prospective investors in publicly listed maritime and shipping companies. The full service of reports, supporting resources and sector orientated webinars provides our clients with the most complete picture of the organisations under coverage as is possible. We have been charting and analysing the world’s maritime markets for more than 40 years. This unrivalled intelligence and understanding provides the foundation of our research service. Our analysts have access to one of the most up-to-date, comprehensive and reliable sources of market insight and research data available today. We look at globally listed companies within the following sectors: Port Operators, Container Shipping, Container Manufacturing & Leasing, LNG Shipping, Dry Bulk Shipping and Tanker Shipping. Combine in-depth sector expertise with financial analysis focusing on over 50 stocks globally.

Thematic (Sector/Industry)

<blockquote>
“Using leverage to cure the problems of too much leverage is not homeopathy, it is denial. The debt crisis is not a temporary problem, it is a structural one. We need rehab.”
―Nassim Nicholas Taleb, Ten principles for a Black Swan-proof world (2009)
</blockquote>This morning, Hanjin Shipping Co. said it will apply for court receivership after lenders decided to halt all support. We have been highlighting these risks from 2013 and in our last update on troubled container shipping company, we had highlighted the…


“Using leverage to cure the problems of too much leverage is not homeopathy, it is denial. The debt crisis is not a temporary problem, it is a structural one. We need rehab.”
―Nassim Nicholas Taleb, Ten principles for a Black Swan-proof world (2009)
This morning, Hanjin Shipping Co. said it will apply for court receivership after lenders decided to halt all support. We have been highlighting these risks from 2013 and in our last update on troubled container shipping company, we had highlighted the…

Hanjin Shipping(117930 KS) - Borrowed Time Comes to an End

The four major construction stocks in Korea <a href="https://www.smartkarma.com/entities/4292" target="_blank" data-smartkarma-citation="entities:4292">Hyundai Engineering &amp; Const</a>, <a href="https://www.smartkarma.com/entities/7699" target="_blank" data-smartkarma-citation="entities:7699">Hyundai Development Co Engg &amp; Cnstn</a>, <a href="https://www.smartkarma.com/entities/15916" target="_blank" data-smartkarma-citation="entities:15916">Gs Engineering &amp; Construct</a>, and <a href="https://www.smartkarma.com/entities/12333" target="_blank" data-smartkarma-citation="entities:12333">Daewoo Engineering &amp; Constr</a> share prices are on average down 10% from 13 April 2016 (in the same period KOSPI was up 0.3%) , post the election of the National Assembly members in Korea. We gave out a warning on 17 April 206 on these four Korean construction stocks <a href="https://www.smartkarma.com/insights/warning-on-korean-construction-stocks-ruling-saenuri-party-is-crushed-in-national-assembly-election" target="_blank" data-smartkarma-citation="insights:3422">Warning on Korean Construction Stocks: Ruling Saenuri Party Is Crushed in National Assembly</a>…

The four major construction stocks in Korea Hyundai Engineering &amp; Const, Hyundai Development Co Engg &amp; Cnstn, Gs Engineering &amp; Construct, and Daewoo Engineering &amp; Constr share prices are on average down 10% from 13 April 2016 (in the same period KOSPI was up 0.3%) , post the election of the National Assembly members in Korea. We gave out a warning on 17 April 206 on these four Korean construction stocks Warning on Korean Construction Stocks: Ruling Saenuri Party Is Crushed in National Assembly…

Close Out the Shorts on Korean Construction Stocks?

This is a follow-up to the warning on the Korean construction stocks which we issued more than a month ago. <a href="https://www.smartkarma.com/insights/warning-on-korean-construction-stocks-ruling-saenuri-party-is-crushed-in-national-assembly-election" target="_blank" data-smartkarma-citation="insights:3422">Warning on Korean Construction Stocks: Ruling Saenuri Party Is Crushed in National Assembly Election</a> We gave a strong warning on the four major construction stocks and they are down on average 7.2% from the end of the National Assembly Elections in Korea (about 5 weeks ago) to today, under performing KOSPI which is down 1.7% during the same period.  We continue to be bearish on the Korean…

This is a follow-up to the warning on the Korean construction stocks which we issued more than a month ago. Warning on Korean Construction Stocks: Ruling Saenuri Party Is Crushed in National Assembly Election We gave a strong warning on the four major construction stocks and they are down on average 7.2% from the end of the National Assembly Elections in Korea (about 5 weeks ago) to today, under performing KOSPI which is down 1.7% during the same period.  We continue to be bearish on the Korean…

Korean Construction Stocks - Household Debt Is the Achilles Heel

South Korea

Chin Hung International Inc. constructs highways, commercial buildings. and residential buildings.

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