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>Ecopro's tender offer to HN shareholders is slightly different from the previous cases in terms of the undertaking.</strong></p><hr><p>First, the tender offer procedure has not changed. The target is 6,121,913 shares, equivalent to 40% of Ecopro HN's issued shares. And the swap price of Ecopro HN is ₩110,500. The important point here is that this ₩110,500 has been confirmed and therefore won't change.</p><table class="table table-striped">
<colgroup>
<col width="300">
<col width="300">
</colgroup>
<tbody>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Overview"}'>Overview</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Type"}'>Type</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Exchange offer"}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'>Exchange offer</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Acquirer"}'>Acquirer</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Ecopro Co., Ltd."}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>Ecopro 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":"086520"}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula='="086520"'>086520</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Qty."}'><strong>- Qty.</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":6371529}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'><strong>6,371,529</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Swap price"}'><strong>- Swap price</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":106172}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'><strong>106,172</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Target company"}'>Target company</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Ecopro HN Co Ltd"}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>Ecopro HN Co Ltd</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Ticker"}'>- Ticker</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"383310"}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula='="383310"'>383310</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Qty."}'><strong>- Qty.</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":6121973}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'><strong>6,121,973</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Swap price"}'><strong>- Swap price</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":110500}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}'><strong>₩110,500</strong></td>
</tr>
<tr><td colspan="2"></td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Target volume as % of SO"}'><strong>Target volume as % of SO</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.400000013067683}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula='=R[-2]C[0]/googlefinance(R[-3]C[0], "shares")'><strong>40.00%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Target value"}'><strong>Target value</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":676478016500}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula="=R[-2]C[0]*R[-3]C[0]"><strong>₩676,478,016,500</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Banker"}'>Banker</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Daishin"}'>Daishin</td>
</tr>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><p>For reference, the swap price of Ecopro HN, ₩110,500, was calculated as follows.</p><ul>
<li>September 3 is the reference date.</li>
<li>It was calculated through Min [Close on September 3, Average(Close on September 3, 1W VWAP, 1M VWAP)].</li>
<li>This is in accordance with the regulations of KRX.</li>
</ul><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/228/238/original/Screen+Shot+2021-09-06+at+10.01.23+PM.png?1630980223" class="editor-image img-responsive" data-smartkarma-image-id="228238"></figure></section><p><strong>The next important thing is that Ecopro's swap price is not fixed. </strong>₩106,172 is literally a tentative price. It was calculated by the formula below.</p><ul>
<li>September 1 is the reference date.</li>
<li>It was calculated through 3D VWAP at a discount rate of 0%.</li>
<li>This also follows the rules of KRX.</li>
</ul><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/228/239/original/Screen+Shot+2021-09-06+at+10.08.38+PM.png?1630980616" class="editor-image img-responsive" data-smartkarma-image-id="228239"></figure></section><p>This ₩106,172 is not a fixed amount, so it has practically no meaning. So when will Ecopro's swap price be finalized? <strong>Ecopro's swap price is confirmed through VWAP for 3 days from October 5th to 7th. The discount rate applied in this case is 0%.</strong></p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/228/242/original/Screen+Shot+2021-09-06+at+9.35.16+PM.png?1630980823" class="editor-image img-responsive" data-smartkarma-image-id="228242"></figure></section><hr><div class="content-highlight"><p><strong>Therefore, it is meaningless to calculate the swap arb spread at this point with the tentative price.</strong></p></div>

Ecopro's tender offer to HN shareholders is slightly different from the previous cases in terms of the undertaking.First, the tender offer procedure has not changed. The target is 6,121,913 shares, equivalent to 40% of Ecopro HN's issued shares. And the swap price of Ecopro HN is ₩110,500. The important point here is that this ₩110,500 has been confirmed and therefore won't change.





Overview

Type
Exchange offer


Acquirer
Ecopro Co., Ltd.


- Ticker
086520


- Qty.
6,371,529


- Swap price
106,172


Target company
Ecopro HN Co Ltd


- Ticker
383310


- Qty.
6,121,973


- Swap price
₩110,500



Target volume as % of SO
40.00%


Target value
₩676,478,016,500


Banker
Daishin

Source: DART

For reference, the swap price of Ecopro HN, ₩110,500, was calculated as follows.
September 3 is the reference date.
It was calculated through Min [Close on September 3, Average(Close on September 3, 1W VWAP, 1M VWAP)].
This is in accordance with the regulations of KRX.
The next important thing is that Ecopro's swap price is not fixed. ₩106,172 is literally a tentative price. It was calculated by the formula below.
September 1 is the reference date.
It was calculated through 3D VWAP at a discount rate of 0%.
This also follows the rules of KRX.
This ₩106,172 is not a fixed amount, so it has practically no meaning. So when will Ecopro's swap price be finalized? Ecopro's swap price is confirmed through VWAP for 3 days from October 5th to 7th. The discount rate applied in this case is 0%.Therefore, it is meaningless to calculate the swap arb spread at this point with the tentative price.

Ecopro Tender: Undertaking Is a Bit Different but Should Offer a Fairly Juicy Arb Setup

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

<p>Ecopro Co Ltd (086520 KS) announced after the market close on September 6th that it will conduct a rights offering worth 676 billion won, representing 37% of market cap. The company will issue 6.37 million new shares (representing 34% of its existing outstanding shares) and the rights offering price is 106,172 won per share, representing 9.1% premium to the current price.</p><p>The following are the key dates of the rights offering:</p><ul>
<li>Subscription expected dates - 13 October to 1 November</li>
<li>Rights offering subscription payments required - 4 November</li>
<li>Rights offering new shares listing - 19 November</li>
</ul><p>Ecopro Co will use the proceeds from the rights offering to purchase 6.12 million shares of Ecopro HN at 110,500 won (2% premium to current price) which total 676 billion won. Ecopro HN has 15.3 million shares outstanding so 6.12 million shares to be purchased in the tender offer would be 40% of outstanding shares. </p><div class="content-highlight"><p>Despite the opportunity to purchase an increasing stake in Ecopro HN, this will result in a significant shares dilution for the existing shareholders of Ecopro Co which is a big negative. Many investors will be concerned about Ecopro Co purchasing a large stake of Ecopro HN, especially after a steep increase in the latter company's stock price in the past three months. As a result, we have a Negative view of Ecopro Co at current levels. </p></div>

Ecopro Co Ltd (086520 KS) announced after the market close on September 6th that it will conduct a rights offering worth 676 billion won, representing 37% of market cap. The company will issue 6.37 million new shares (representing 34% of its existing outstanding shares) and the rights offering price is 106,172 won per share, representing 9.1% premium to the current price.The following are the key dates of the rights offering:
Subscription expected dates - 13 October to 1 November
Rights offering subscription payments required - 4 November
Rights offering new shares listing - 19 November
Ecopro Co will use the proceeds from the rights offering to purchase 6.12 million shares of Ecopro HN at 110,500 won (2% premium to current price) which total 676 billion won. Ecopro HN has 15.3 million shares outstanding so 6.12 million shares to be purchased in the tender offer would be 40% of outstanding shares. Despite the opportunity to purchase an increasing stake in Ecopro HN, this will result in a significant shares dilution for the existing shareholders of Ecopro Co which is a big negative. Many investors will be concerned about Ecopro Co purchasing a large stake of Ecopro HN, especially after a steep increase in the latter company's stock price in the past three months. As a result, we have a Negative view of Ecopro Co at current levels. 

Ecopro Co Announces A Rights Offering Worth 676 Billion Won (37% of Market Cap)

Equity Bottom-Up

<p>In this insight, we provide visual set-ups of the Korean stubs related pair-trades. We have included 40 pair trade set-ups of all the major Korean stubs related pairs (including regular and quasi holdcos and their respective opcos). We have provided YTD price chart comparisons of all the 40 pair trade set-ups below. </p><p>The <strong>top six best performing holdcos</strong> (among the companies listed below) YTD are as follows:</p><ul>
<li>
<a href="https://www.smartkarma.com/entities/doosan-co-ltd" target="_blank" data-smartkarma-citation="entities:7423:1" rel="noopener">Doosan Corp (000150 KS)</a> - up 86% YTD</li>
<li>
<a href="https://www.smartkarma.com/entities/hyosung-corporation" target="_blank" data-smartkarma-citation="entities:20712:1" rel="noopener">Hyosung Corporation (004800 KS)</a> - Up 62.5% YTD</li>
<li>
<a href="https://www.smartkarma.com/entities/poongsan-corp" target="_blank" data-smartkarma-citation="entities:16504:1" rel="noopener">Poongsan Corp (103140 KS)</a> - Up 50.3% YTD</li>
<li>
<a href="https://www.smartkarma.com/entities/samyang-holdings-corp" target="_blank" data-smartkarma-citation="entities:13761:1" rel="noopener">Samyang Holdings (000070 KS)</a> - Up 47.7% YTD</li>
<li>
<a href="https://www.smartkarma.com/entities/ecopro-co-ltd" target="_blank" data-smartkarma-citation="entities:19029:1" rel="noopener">Ecopro Co Ltd (086520 KS)</a> - Up 34.8% YTD</li>
<li>
<a href="https://www.smartkarma.com/entities/orion-corp" target="_blank" data-smartkarma-citation="entities:7615:1" rel="noopener">Orion Holdings (001800 KS)</a> - Up 30.2% YTD</li>
</ul><p>The <strong>top six best performing opcos</strong> (among the companies listed below) YTD are as follows:</p><ul>
<li>
<a href="https://www.smartkarma.com/entities/hanwha-aerospace-co-ltd" target="_blank" data-smartkarma-citation="entities:504:1" rel="noopener">Hanwha Aerospace (012450 KS)</a> - Up 73.8% YTD</li>
<li>
<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> - Up 56.5% YTD</li>
<li>
<a href="https://www.smartkarma.com/entities/ecopro-bm-co-ltd" target="_blank" data-smartkarma-citation="entities:27873:1" rel="noopener">Ecopro BM Co Ltd (247540 KS)</a> - 54.7% YTD</li>
<li>Aekyung Petrochem - Up 47.2% YTD</li>
<li>
<a href="https://www.smartkarma.com/entities/pan-ocean-co-ltd" target="_blank" data-smartkarma-citation="entities:5279:1" rel="noopener">Pan Ocean (028670 KS)</a> - Up 40.6% YTD</li>
<li>
<a href="https://www.smartkarma.com/entities/poongsan-corp" target="_blank" data-smartkarma-citation="entities:16504:1" rel="noopener">Poongsan Corp (103140 KS)</a> - Up 36.7% YTD</li>
</ul>

In this insight, we provide visual set-ups of the Korean stubs related pair-trades. We have included 40 pair trade set-ups of all the major Korean stubs related pairs (including regular and quasi holdcos and their respective opcos). We have provided YTD price chart comparisons of all the 40 pair trade set-ups below. The top six best performing holdcos (among the companies listed below) YTD are as follows:

Doosan Corp (000150 KS) - up 86% YTD

Hyosung Corporation (004800 KS) - Up 62.5% YTD

Poongsan Corp (103140 KS) - Up 50.3% YTD

Samyang Holdings (000070 KS) - Up 47.7% YTD

Ecopro Co Ltd (086520 KS) - Up 34.8% YTD

Orion Holdings (001800 KS) - Up 30.2% YTD
The top six best performing opcos (among the companies listed below) YTD are as follows:

Hanwha Aerospace (012450 KS) - Up 73.8% YTD

Doosan Heavy Industries &amp; Construction (034020 KS) - Up 56.5% YTD

Ecopro BM Co Ltd (247540 KS) - 54.7% YTD
Aekyung Petrochem - Up 47.2% YTD

Pan Ocean (028670 KS) - Up 40.6% YTD

Poongsan Corp (103140 KS) - Up 36.7% YTD


Pair Trade Setups of Korean Holdcos & Opcos

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

<div>
<p>This week in StubWorld ...</p>
</div>
<div>
<div class="content-highlight">
<p>When a company spins off a business, wherein shares are distributed to existing shareholders on pro-rata basis, the parent company typically declines. But <a href="https://www.smartkarma.com/entities/ecopro-co-ltd" target="_blank" data-smartkarma-citation="entities:19029:1" rel="noopener">Ecopro Co Ltd (086520 KS)</a>'s 40% decline upon relisting defies logic, even for extreme Korean Holdco structures.</p>
</div>
</div>
<div>
<p>Preceding my comments on Ecopro are the weekly setup/unwind tables for Asia-Pacific Holdcos.</p>
</div>
<div><hr></div>
<div>
<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>
</div>


This week in StubWorld ...



When a company spins off a business, wherein shares are distributed to existing shareholders on pro-rata basis, the parent company typically declines. But Ecopro Co Ltd (086520 KS)'s 40% decline upon relisting defies logic, even for extreme Korean Holdco structures.



Preceding my comments on Ecopro 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%.


StubWorld: What Is Up (Or Down) With Ecopro Co?

<p>In this insight, we discuss the trading opportunities involving <a href="https://www.smartkarma.com/entities/ecopro-co-ltd" target="_blank" data-smartkarma-citation="entities:19029:1" rel="noopener">Ecopro Co Ltd (086520 KS)</a> and Ecopro HN (383310 KS) post their split. These two stocks started trading again on 28 May. Our NAV analysis of <strong>Ecopro Co</strong> suggests an implied value of 1.1 trillion won or NAV per share of 59,528 won, representing a 25% upside from the current price.</p><p><strong>Ecopro HN</strong> is a leading, pure-play environmental service provider in Korea. At the current price of 148,700 won, this stock looks undervalued. It is currently trading at EV/EBITDA multiples of 15.5x in 2021 and 10.9x in 2022. If we apply the same EV/EBITDA multiple of 15.5x to 2022 estimates, this would represent an upside of 42% from current levels (target price of 211.451 won). </p><p>In conclusion, we believe that Ecopro HN provides higher upside than Ecopro Co at current levels. We would not necessarily go long Ecopro HN and short Ecopro Co at current levels. In addition, we believe that Ecopro HN has the potential to reach nearly 1 trillion won in market cap over the next 2-3 years which is likely to be an attractive candidate for numerous indices, especially those that like to include stocks that rank high on ESG ratings (especially for the Environment).</p>

In this insight, we discuss the trading opportunities involving Ecopro Co Ltd (086520 KS) and Ecopro HN (383310 KS) post their split. These two stocks started trading again on 28 May. Our NAV analysis of Ecopro Co suggests an implied value of 1.1 trillion won or NAV per share of 59,528 won, representing a 25% upside from the current price.Ecopro HN is a leading, pure-play environmental service provider in Korea. At the current price of 148,700 won, this stock looks undervalued. It is currently trading at EV/EBITDA multiples of 15.5x in 2021 and 10.9x in 2022. If we apply the same EV/EBITDA multiple of 15.5x to 2022 estimates, this would represent an upside of 42% from current levels (target price of 211.451 won). In conclusion, we believe that Ecopro HN provides higher upside than Ecopro Co at current levels. We would not necessarily go long Ecopro HN and short Ecopro Co at current levels. In addition, we believe that Ecopro HN has the potential to reach nearly 1 trillion won in market cap over the next 2-3 years which is likely to be an attractive candidate for numerous indices, especially those that like to include stocks that rank high on ESG ratings (especially for the Environment).

Trading Strategies for Ecopro Co & Ecopro HN Post Split

South Korea

Ecopro Co., Ltd. specializes in developing chemical absorbent and NDC (Nano Carbon Ball) in the field of environmental materials for the prevention of air pollution.  The Company's products include environment-related chemical filters, second battery materials, and CO catalyst.

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Ecopro Co Ltd (086520 KS)

Ecopro Tender: Undertaking Is a Bit Different but Should Offer a Fairly Juicy Arb Setup

This post details the Ecopro tender event targeting Ecopro HN shareholders. The undertaking is a bit different this time, but it should offer a...

Sanghyun Park

Ecopro Co Announces A Rights Offering Worth 676 Billion Won (37% of Market Cap)

Ecopro Co announced on September 6th that it will conduct a rights offering worth 676 billion won, representing 37% of market cap. We believe this...

Douglas Kim

Pair Trade Setups of Korean Holdcos & Opcos

In this insight, we provide visual set-ups of the Korean stubs related pair-trades. We have included 40 pair trade set-ups of all the major Korean...

Douglas Kim

StubWorld: What Is Up (Or Down) With Ecopro Co?

The current share price of Ecopro Co appears unsubstantiated here. I would set up a Long Ecopro Co versus Short Ecopro BM.

David Blennerhassett

Trading Strategies for Ecopro Co & Ecopro HN Post Split

In this insight, we discuss the trading opportunities involving Ecopro Co Ltd (086520 KS) and Ecopro HN (383310 KS) post their split.

Douglas Kim

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