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

<ul>
<li>The KRX officially unveiled the results of the December rebalancing for KOSDAQ 150. We have <strong>a total of 15 additions and 15 deletions</strong> from the regular rebalancing.</li>
<li>The following trade-suitable stocks among the additions are <strong>Bioneer Corp, TK Chemical, AptaBio Therapeutics, Cellid, and Ecopro HN</strong>.</li>
<li>Among the deletions, these are worthy of our attention: <strong>SK Materials, Crystal Genomics, G-TreeBNT, and Icure Pharmaceutical</strong>
</li>
</ul>


The KRX officially unveiled the results of the December rebalancing for KOSDAQ 150. We have a total of 15 additions and 15 deletions from the regular rebalancing.
The following trade-suitable stocks among the additions are Bioneer Corp, TK Chemical, AptaBio Therapeutics, Cellid, and Ecopro HN.
Among the deletions, these are worthy of our attention: SK Materials, Crystal Genomics, G-TreeBNT, and Icure Pharmaceutical



15 Adds & 15 Deletes in KOSDAQ 150 Rebalancing: Passive Impact & Trade Approaches

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

<ul>
<li>There are 15 inclusions and 15 exclusions for the <a href="https://www.smartkarma.com/entities/kosdaq-150-index" target="_blank" data-smartkarma-citation="entities:31077:1" rel="noopener">KOSDAQ 150 Index (KOSDQ150 INDEX)</a> at the next rebalance to be implemented at the close on 9 December.</li>
<li>The inclusions were expected but there are a few surprises among the deletions as the Information Technology sector was spared at the expense of the Health Care sector.</li>
<li>Over the last couple of months, the inclusions have given up their early gains versus the deletions. With the announcement made, the inclusions could outperform over the next few weeks.</li>
</ul>


There are 15 inclusions and 15 exclusions for the KOSDAQ 150 Index (KOSDQ150 INDEX) at the next rebalance to be implemented at the close on 9 December.
The inclusions were expected but there are a few surprises among the deletions as the Information Technology sector was spared at the expense of the Health Care sector.
Over the last couple of months, the inclusions have given up their early gains versus the deletions. With the announcement made, the inclusions could outperform over the next few weeks.


KOSDAQ150 Index Rebalance: Pullback Done; Buy Adds & Sell Deletes

<p>The KOSDAQ 150 has no Fast Entry rule for IPO stocks.</p><p>However, it has the rule to include the stocks not meeting the minimum listing period of 6 months at a regular bi-annual rebalancing if the following condition is satisfied.</p><div class="content-highlight"><p><strong>A stock is in the top 50 ordinary stocks on KOSDAQ by full market capitalization.</strong></p></div><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/240/350/original/Screen+Shot+2021-11-08+at+4.43.27+AM.png?1636364839" class="editor-image img-responsive" data-smartkarma-image-id="240350"></figure></section><div class="content-caption">(Source: KOSDAQ 150 Methodology)</div><p>So what is the calculation period? It is simple. The KRX uses the average daily market capitalization for 15 trading days from the screening base date. The screening base date for this December regular rebalancing is October 31.</p><div class="content-highlight"><p><strong>So the 15 trading day review period is from October 8 to October 29.</strong></p></div><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/240/352/original/Screen+Shot+2021-11-08+at+4.43.54+AM.png?1636364975" class="editor-image img-responsive" data-smartkarma-image-id="240352"></figure></section><div class="content-caption">(Source: KOSDAQ 150 Methodology)</div>

The KOSDAQ 150 has no Fast Entry rule for IPO stocks.However, it has the rule to include the stocks not meeting the minimum listing period of 6 months at a regular bi-annual rebalancing if the following condition is satisfied.A stock is in the top 50 ordinary stocks on KOSDAQ by full market capitalization.(Source: KOSDAQ 150 Methodology)So what is the calculation period? It is simple. The KRX uses the average daily market capitalization for 15 trading days from the screening base date. The screening base date for this December regular rebalancing is October 31.So the 15 trading day review period is from October 8 to October 29.(Source: KOSDAQ 150 Methodology)

KOSDAQ 150 Exceptional Addition of Large-Scale Stocks: Ecopro HN & HK Inno.N

<h2>Pro-ration results</h2>
<p>As suggested in the previous insight <a href="https://www.smartkarma.com/insights/ecopro-tender-event-pro-ration-risk-analysis-arb-spread-widening-possibilities" target="_blank" data-smartkarma-citation="insights:59265" rel="noopener">Ecopro Tender Event: Pro-Ration Risk Analysis &amp; Arb Spread Widening Possibilities</a>, Ecopro's final subscription rate fell short of hitting the target. The final rate was 74.41%, issuing only 5.27M new Ecopro shares. The forfeited shares are 1.81M, and these will not be issued.</p>
<section class="figure">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/239/790/original/Screen+Shot+2021-11-02+at+10.31.05+PM.png?1636073811" class="editor-image img-responsive" data-smartkarma-image-id="239790"></figure>
</section>
<div class="content-caption">(<a href="https://engkind.krx.co.kr/common/disclsviewer.do?method=search&amp;acptNo=20211102000129&amp;docno=&amp;formProcsCd=070&amp;language=english" target="_blank" rel="noopener">Source: KRX KIND</a>)</div>
<p>As a result, Ecopro's number of issued shares will increase by 5.27M from <span data-sheets-value='{"1":3,"3":18701387}' data-sheets-userformat='{"2":15041,"3":{"1":2,"2":"#,##0","3":1},"9":2,"10":1,"12":0,"14":{"1":2,"2":0},"15":"Courier New","16":9}' data-sheets-formula='=googlefinance(R[-1]C[0], "shares")'>18.7M to 24.0M, representing a capital increase rate of 28.2% at a shareholding dilution of 22.0% </span></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":"Swap results"}'>Swap results</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":"Target"}'>Target</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":7087918}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'>7,087,918</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":": Capital increase rate"}'>: Capital increase rate</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.37900493690655135}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula='=R[-1]C[0]/googlefinance(R[-2]C[1], "shares")'>37.90%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":": Dilution"}'>: Dilution</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.27483943440895364}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=R[-2]C[0]/(R[-2]C[0]+R[-2]C[1])">27.48%</td>
</tr>
<tr>
<td colspan="2"></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Actual tendered"}'><strong>Actual tendered</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":5274285}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'><strong>5,274,285</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":": Capital increase rate"}'><strong>: Capital increase rate</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.282026407987814}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=R[-1]C[0]/R[-4]C[1]"><strong>28.20%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":": Dilution"}'><strong>: Dilution</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.21998486632616596}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=R[-2]C[0]/(R[-2]C[0]+R[-5]C[1])"><strong>22.00%</strong></td>
</tr>
<tr>
<td colspan="2" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td>
</tr>
</tbody>
</table>
<p>Since October 8, when the swap price ratio was finally confirmed, the swap arb spread has risen to a little above 3%. During the 20-day arb trading period, the spread had fluctuated pretty much at a 2-3% range. During this period, the relatively tight arb spread appears to be due to active arb trading, believing that pro-ration risk shouldn't be high.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/239/791/original/image_84768239521636074386606.png?1636074388" class="editor-image img-responsive" data-smartkarma-image-id="239791"></figure>

Pro-ration results
As suggested in the previous insight Ecopro Tender Event: Pro-Ration Risk Analysis &amp; Arb Spread Widening Possibilities, Ecopro's final subscription rate fell short of hitting the target. The final rate was 74.41%, issuing only 5.27M new Ecopro shares. The forfeited shares are 1.81M, and these will not be issued.



(Source: KRX KIND)
As a result, Ecopro's number of issued shares will increase by 5.27M from 18.7M to 24.0M, representing a capital increase rate of 28.2% at a shareholding dilution of 22.0% 







Swap results


Type
Exchange offer


Target
7,087,918


: Capital increase rate
37.90%


: Dilution
27.48%





Actual tendered
5,274,285


: Capital increase rate
28.20%


: Dilution
22.00%


Source: DART



Since October 8, when the swap price ratio was finally confirmed, the swap arb spread has risen to a little above 3%. During the 20-day arb trading period, the spread had fluctuated pretty much at a 2-3% range. During this period, the relatively tight arb spread appears to be due to active arb trading, believing that pro-ration risk shouldn't be high.


Ecopro Tender: Pro-Ration Results, KOSDAQ 150 Corporate Action & Est. Passive Impact

<p>The Ecopro tender spread is still compressed at the 2% level. The current arb yield stands at 2.54% at the last close. </p><table class="table table-striped">
<colgroup>
<col width="200">
<col width="200">
<col width="200">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap gain"}'>Swap gain</td>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"Ecopro Co., Ltd."}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula="=Terms!R[-10]C[0]">Ecopro Co., Ltd.</td>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"Ecopro HN Co Ltd"}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula="=Terms!R[-6]C[-1]">Ecopro HN Co Ltd</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Ticker"}'>Ticker</td>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"086520"}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula="=Terms!R[-10]C[0]">086520</td>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"383310"}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula="=Terms!R[-6]C[-1]">383310</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Current price"}'>Current price</td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":98400}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula='=googlefinance(Terms!R[-11]C[0], "price")'>₩98,400</td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":111100}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula='=googlefinance(Terms!R[-7]C[-1], "price")'>₩111,100</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap price"}'>Swap price</td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":95441}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula="=Terms!R[-10]C[0]">₩95,441</td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":110500}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula="=Terms!R[-6]C[-1]">₩110,500</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap ratio"}'>Swap ratio</td>
<td colspan="2" rowspan="1" style="text-align: center;" data-sheets-value='{"1":3,"3":1.157783342588615}' data-sheets-numberformat='{"1":2,"2":"#,##0.0000000","3":1}' data-sheets-formula="=R[-1]C[1]/R[-1]C[0]">1.1577833</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Price for 100 shares of the target company"}'>Price for 100 shares of the target company</td>
<td colspan="2" rowspan="1" style="text-align: center;" data-sheets-value='{"1":3,"3":11110000}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula="=R[-3]C[1]*100">₩11,110,000</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Number of new shares of the acquiring company"}'>Number of new shares of the acquiring company</td>
<td colspan="2" rowspan="1" style="text-align: center;" data-sheets-value='{"1":3,"3":115.7783342588615}' data-sheets-numberformat='{"1":2,"2":"#,##0.0000000","3":1}' data-sheets-formula="=100*R[-2]C[0]">115.7783343</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Value of the new shares at the current price"}'>Value of the new shares at the current price</td>
<td colspan="2" rowspan="1" style="text-align: center;" data-sheets-value='{"1":3,"3":11392588.091071973}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula="=R[-1]C[0]*R[-5]C[0]">₩11,392,588</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap gain"}'>Swap gain</td>
<td colspan="2" rowspan="1" style="text-align: center;" data-sheets-value='{"1":3,"3":0.0254354717436519}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=(R[-1]C[0]-R[-3]C[0])/R[-3]C[0]">2.54%</td>
</tr>
<tr><td colspan="3" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART &amp; KRX"}'>Source: DART &amp; KRX</td></tr>
</tbody>
</table><p>The spread has not exceeded 3% since October 8, when short-selling restrictions were lifted and arb trading became possible.</p><div class="content-highlight"><p><strong>The main reason the spread is not widening is that the share price of Ecopro HN has risen, which paradoxically shows that short-term purchases for arb trading are influencing it strongly.</strong></p></div><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/236/519/original/image_27181164221634749642433.png?1634749643" class="editor-image img-responsive" data-smartkarma-image-id="236519"></figure><hr><p><strong>This tender event is briefly summarized as follows:</strong></p><ul>
<li>Acquirer: Ecopro Co., Ltd.</li>
<li>Stocks subject to purchase: Ecopro HN registered common stock (6,121,973 shares)</li>
<li>Payment method: Grant of new common stock of Ecopro Co., Ltd. (cash payment for fraction stocks)</li>
<li>Tendering period: October 13 ~ November 1, 2021</li>
<li>Tendering price: ₩110,500 per share</li>
<li>Ecopro Co., Ltd. issuance price of new shares: ₩95,441 per share</li>
<li>Stock exchange ratio: 1.1577833 (Ecopro 1.1577833 shares exchanged per 1 Ecopro HN share)</li>
<li>Stock settlement date and cash payment date (for fractional shares): November 4, 2021</li>
<li>Listing date: November 19, 2021</li>
<li>Subscription channel: must physically visit a Daishin Securities branch (+82 1588-4488)</li>
</ul><hr><p>The most active arb-trading institutional investors in stock swap events in the Korean local market are local brokerages/investment advisories. Since October 8, they have significantly increased their stock purchases of Ecopro HN. In other words, this proves that a significant level of arb trading is taking place in this event.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/236/527/original/Screen+Shot+2021-10-20+at+4.30.59+PM.png?1634761895" class="editor-image img-responsive" data-smartkarma-image-id="236527"></figure><p>Short-selling on Ecopro Co., Ltd. also increased significantly from October 8. For reference, October 12 was the day when Ecopro Co was shorting-restricted. By the way, we see a significant discrepancy on October 8 between local brokerages/investment advisories' net buying of Ecopro HN and the short-selling on Ecopro Co. It seems to be because those investors had bought Ecopro HN during the short-selling ban period short-sold Ecopro Co., Ltd on this day.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/236/535/original/Screen+Shot+2021-10-20+at+4.31.17+PM.png?1634765907" class="editor-image img-responsive" data-smartkarma-image-id="236535"></figure></section>

The Ecopro tender spread is still compressed at the 2% level. The current arb yield stands at 2.54% at the last close. 







Swap gain
Ecopro Co., Ltd.
Ecopro HN Co Ltd


Ticker
086520
383310


Current price
₩98,400
₩111,100


Swap price
₩95,441
₩110,500


Swap ratio
1.1577833


Price for 100 shares of the target company
₩11,110,000


Number of new shares of the acquiring company
115.7783343


Value of the new shares at the current price
₩11,392,588


Swap gain
2.54%

Source: DART &amp; KRX

The spread has not exceeded 3% since October 8, when short-selling restrictions were lifted and arb trading became possible.The main reason the spread is not widening is that the share price of Ecopro HN has risen, which paradoxically shows that short-term purchases for arb trading are influencing it strongly.This tender event is briefly summarized as follows:
Acquirer: Ecopro Co., Ltd.
Stocks subject to purchase: Ecopro HN registered common stock (6,121,973 shares)
Payment method: Grant of new common stock of Ecopro Co., Ltd. (cash payment for fraction stocks)
Tendering period: October 13 ~ November 1, 2021
Tendering price: ₩110,500 per share
Ecopro Co., Ltd. issuance price of new shares: ₩95,441 per share
Stock exchange ratio: 1.1577833 (Ecopro 1.1577833 shares exchanged per 1 Ecopro HN share)
Stock settlement date and cash payment date (for fractional shares): November 4, 2021
Listing date: November 19, 2021
Subscription channel: must physically visit a Daishin Securities branch (+82 1588-4488)
The most active arb-trading institutional investors in stock swap events in the Korean local market are local brokerages/investment advisories. Since October 8, they have significantly increased their stock purchases of Ecopro HN. In other words, this proves that a significant level of arb trading is taking place in this event.Short-selling on Ecopro Co., Ltd. also increased significantly from October 8. For reference, October 12 was the day when Ecopro Co was shorting-restricted. By the way, we see a significant discrepancy on October 8 between local brokerages/investment advisories' net buying of Ecopro HN and the short-selling on Ecopro Co. It seems to be because those investors had bought Ecopro HN during the short-selling ban period short-sold Ecopro Co., Ltd on this day.

Ecopro Tender Event: Pro-Ration Risk Analysis & Arb Spread Widening Possibilities

South Korea

Ecopro HN Co. Ltd. operates as an environmental company. The Company provides environment engineering, environment consulting, and other related services. Ecopro Insight offers services throughout South Korea.

Price Gauge
52-week Range	0.00 - 0.00
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Ecopro HN (383310 KS)

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Sanghyun Park

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