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

<h2>Merger arbitrage yield</h2><p>The merger arb yield currently stands at 5.86%, excluding transaction costs, as I'm writing this post (10:30 AM in Korea local time). You buy a GS Home Shopping share for the current price of ₩156,400. Then, you short 4.22368 GS Retail shares for the current price of ₩165,568 (₩39,200 x 4.22368). Your one GS Home Shopping share will be converted into 4.22368 GS Retail shares to cover your short position.</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":"Spread - swap"}'>Spread - swap</td>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"Acquirer"}'>GS Retail - Acquirer</td>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"Target company"}'>GS Home Shopping - Target company</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":39200}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula='=googlefinance(Terms!R[2]C[0], "price")'>₩39,200</td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":156400}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula='=googlefinance(Terms!R[5]C[-1], "price")'>₩156,400</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":33800}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=Terms!R[7]C[0]">₩33,800</td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":142762}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=Terms!R[13]C[-1]">₩142,762</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - x Swap ratio"}'>- x Swap ratio</td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":165568.38927999997}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=R[-2]C[0]*Terms!R[15]C[0]">₩165,568</td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":156400}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=R[-2]C[0]">₩156,400</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Spread"}'><strong>Spread</strong></td>
<td colspan="2" rowspan="1" style="text-align: center;" data-sheets-value='{"1":3,"3":0.058621414833759426}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[-1]C[0]-R[-1]C[1])/R[-1]C[1]"><strong>5.86%</strong></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 arb spread went south as low as 4.59% this Monday, then bounced back to 5.86% today.</p><section class="figure"><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/210/638/original/GS+Retail+%26+GS+Home+Shopping+merger+swap+arb+yield+%281%29.png?1622597895" class="editor-image img-responsive" data-smartkarma-image-id="210638"></figure></section><h2>Remaining schedule</h2>
<p>Last Friday had an EGM for both companies to get shareholder approval on this merger. GS Retail got a 98.47% approval rate of the attending votes. GS Home Shopping got a 78.5% approval of the attending votes. Both companies met the approval requirements: 1. two-thirds of attending votes and 2. one-thirds of all voting votes.</p>
<p>Now, we are in the middle of the appraisal rights exercise period. It began last Friday and will run until June 29. Then, we will see a trade suspension on GS Home Shopping from June 29 to July 15. The listing of new shares will hit the market the following day, on July 16.</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":"Timetable"}'>Timetable</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Shareholder meeting"}'>Shareholder meeting</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44344}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'>2021. 5. 28</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Stock purchase right exercise (GS Retail &amp; GS Home Shopping)"}'><strong>Stock purchase right exercise (GS Retail &amp; GS Home Shopping)</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"2021. 5. 28 ~ 6. 29"}'><strong>2021. 5. 28 ~ 6. 29</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Trade suspension (GS Home Shopping)"}'>Trade suspension (GS Home Shopping)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"2021. 6. 29 ~ 7. 15"}'>2021. 6. 29 ~ 7. 15</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Listing"}'><strong>Listing</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44393}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'><strong>2021. 7. 16</strong></td>
</tr>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table></section><p>The only risk to a merger arb trade at this point is a cancellation resulting from the stock purchase cost. A combined ₩350B is the limit that GS will consider canceling the merger. We still have about a month to go. But given the substantially negative spread at this point, the cancellation risk should be pretty minimal.</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":"Spread - stock purchase"}'>Spread - stock purchase</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Acquirer"}'>GS Retail - Acquirer</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Target company"}'>GS Home Shopping - Target company</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Current price"}'>Current price</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":39200}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=R[-35]C[0]">₩39,200</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":156400}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=R[-35]C[0]">₩156,400</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Exercise price"}'>Exercise price</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":34125}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=Terms!R[-16]C[0]">₩34,125</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":138855}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=Terms!R[-15]C[-1]">₩138,855</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Spread"}'><strong>Spread</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.12946428571428573}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[-1]C[0]-R[-40]C[0])/R[-40]C[0]"><strong>-12.95%</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.11218030690537084}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[-1]C[0]-R[-40]C[0])/R[-40]C[0]"><strong>-11.22%</strong></td>
</tr>
<tr><td colspan="3" data-sheets-value='{"1":2,"2":"Source: DART &amp; KRX"}'>Source: DART &amp; KRX</td></tr>
</tbody>
</table>

Merger arbitrage yieldThe merger arb yield currently stands at 5.86%, excluding transaction costs, as I'm writing this post (10:30 AM in Korea local time). You buy a GS Home Shopping share for the current price of ₩156,400. Then, you short 4.22368 GS Retail shares for the current price of ₩165,568 (₩39,200 x 4.22368). Your one GS Home Shopping share will be converted into 4.22368 GS Retail shares to cover your short position.







Spread - swap
GS Retail - Acquirer
GS Home Shopping - Target company


Current price
₩39,200
₩156,400


Swap price
₩33,800
₩142,762


- x Swap ratio
₩165,568
₩156,400


Spread
5.86%

Source: DART &amp; KRX

The arb spread went south as low as 4.59% this Monday, then bounced back to 5.86% today.Remaining schedule
Last Friday had an EGM for both companies to get shareholder approval on this merger. GS Retail got a 98.47% approval rate of the attending votes. GS Home Shopping got a 78.5% approval of the attending votes. Both companies met the approval requirements: 1. two-thirds of attending votes and 2. one-thirds of all voting votes.
Now, we are in the middle of the appraisal rights exercise period. It began last Friday and will run until June 29. Then, we will see a trade suspension on GS Home Shopping from June 29 to July 15. The listing of new shares will hit the market the following day, on July 16.






Timetable

Shareholder meeting
2021. 5. 28


Stock purchase right exercise (GS Retail &amp; GS Home Shopping)
2021. 5. 28 ~ 6. 29


Trade suspension (GS Home Shopping)
2021. 6. 29 ~ 7. 15


Listing
2021. 7. 16

Source: DART

The only risk to a merger arb trade at this point is a cancellation resulting from the stock purchase cost. A combined ₩350B is the limit that GS will consider canceling the merger. We still have about a month to go. But given the substantially negative spread at this point, the cancellation risk should be pretty minimal.







Spread - stock purchase
GS Retail - Acquirer
GS Home Shopping - Target company


Current price
₩39,200
₩156,400


Exercise price
₩34,125
₩138,855


Spread
-12.95%
-11.22%

Source: DART &amp; KRX



<p>I track a total of 141 sector pairs in Korea. Starting this insight, I grouped them into three groups: 1. Financials, 2. Retail, and 3. Industrials.</p><hr><h2>Financials</h2><p>4 pairs from the Financials group have a 180-day correlation coefficient above 0.75 (or close) and a 180-day daily price return beta above 0.70 while sitting below -1.0σ on a 20-day moving average. Of these, <strong>Hana Financial/Shinhan Financial</strong> and <strong>Hyundai Marine/DB Insurance</strong> warrant attention.</p><table class="table table-striped">
<colgroup>
<col width="200">
<col width="200">
<col width="70">
<col width="70">
<col width="70">
</colgroup>
<tbody>
<tr>
<td style="width: 241.818px;" data-sheets-value='{"1":2,"2":"Comp 1 (Long)"}'>Comp 1 (Long)</td>
<td style="width: 190px;" data-sheets-value='{"1":2,"2":"Comp 2 (Short)"}'>Comp 2 (Short)</td>
<td style="text-align: right; width: 64.5455px;" data-sheets-value='{"1":2,"2":"Sigma on a 20-day moving average"}'>Sigma on a 20-day moving average</td>
<td style="text-align: right; width: 60.9091px;" data-sheets-value='{"1":2,"2":"180-day correlation coefficient"}'>180-day correlation coefficient</td>
<td style="text-align: right; width: 82.7273px;" data-sheets-value='{"1":2,"2":"Cointegration coefficient (180-day price Δ beta)"}'>Cointegration coefficient (180-day price Δ beta)</td>
</tr>
<tr>
<td style="width: 241.818px;" data-sheets-value='{"1":2,"2":"Mirae Asset Securities Co Ltd"}' data-sheets-formula="=Data!R[-1]C[1]">Mirae Asset Securities Co Ltd</td>
<td style="width: 190px;" data-sheets-value='{"1":2,"2":"Samsung Securities Co Ltd"}' data-sheets-formula="=Data!R[-1]C[1]">Samsung Securities Co Ltd</td>
<td style="text-align: right; width: 64.5455px;" data-sheets-value='{"1":3,"3":-1.222273476903716}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula="=R[8]C[-1]">-1.22</td>
<td style="text-align: right; width: 60.9091px;" data-sheets-value='{"1":3,"3":0.7539862250329782}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula="=Sort!R[0]C[3]">0.75</td>
<td style="text-align: right; width: 82.7273px;" data-sheets-value='{"1":3,"3":0.6991098567863366}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula="=Beta!R[2]C[-3]">0.70</td>
</tr>
<tr>
<td style="width: 241.818px;" data-sheets-value='{"1":2,"2":"Mirae Asset Securities Co Ltd"}' data-sheets-formula="=Data!R[-2]C[3]">Mirae Asset Securities Co Ltd</td>
<td style="width: 190px;" data-sheets-value='{"1":2,"2":"NH Investment &amp; Securities Co Ltd"}' data-sheets-formula="=Data!R[-2]C[3]">NH Investment &amp; Securities Co Ltd</td>
<td style="text-align: right; width: 64.5455px;" data-sheets-value='{"1":3,"3":-1.1519173688233821}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula="=R[8]C[-1]">-1.15</td>
<td style="text-align: right; width: 60.9091px;" data-sheets-value='{"1":3,"3":0.7418291376039101}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula="=Sort!R[2]C[3]">0.74</td>
<td style="text-align: right; width: 82.7273px;" data-sheets-value='{"1":3,"3":0.7031067314990199}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula="=Beta!R[1]C[3]">0.70</td>
</tr>
<tr>
<td style="width: 241.818px;" data-sheets-value='{"1":2,"2":"Hana Financial Group Inc"}' data-sheets-formula="=Data!R[-3]C[5]"><strong>Hana Financial Group Inc</strong></td>
<td style="width: 190px;" data-sheets-value='{"1":2,"2":"Shinhan Financial Group Co., Ltd."}' data-sheets-formula="=Data!R[-3]C[5]"><strong>Shinhan Financial Group Co., Ltd.</strong></td>
<td style="text-align: right; width: 64.5455px;" data-sheets-value='{"1":3,"3":-1.0788984328569544}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula="=R[8]C[-1]"><strong>-1.08</strong></td>
<td style="text-align: right; width: 60.9091px;" data-sheets-value='{"1":3,"3":0.9401716746799647}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula="=Sort!R[2]C[3]"><strong>0.94</strong></td>
<td style="text-align: right; width: 82.7273px;" data-sheets-value='{"1":3,"3":1.021970873112603}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula="=Beta!R[0]C[5]"><strong>1.02</strong></td>
</tr>
<tr>
<td style="width: 241.818px;" data-sheets-value='{"1":2,"2":"Hyundai Marine &amp; Fire Insurance Co., Ltd"}' data-sheets-formula="=Data!R[-4]C[7]"><strong>Hyundai Marine &amp; Fire Insurance Co., Ltd</strong></td>
<td style="width: 190px;" data-sheets-value='{"1":2,"2":"DB Insurance Co Ltd"}' data-sheets-formula="=Data!R[-4]C[7]"><strong>DB Insurance Co Ltd</strong></td>
<td style="text-align: right; width: 64.5455px;" data-sheets-value='{"1":3,"3":-1.0725124068124459}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula="=R[8]C[-1]"><strong>-1.07</strong></td>
<td style="text-align: right; width: 60.9091px;" data-sheets-value='{"1":3,"3":0.9161479896868121}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula="=Sort!R[2]C[3]"><strong>0.92</strong></td>
<td style="text-align: right; width: 82.7273px;" data-sheets-value='{"1":3,"3":0.756650231829711}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula="=Beta!R[-1]C[7]"><strong>0.76</strong></td>
</tr>
<tr><td colspan="5" style="width: 723.636px;" data-sheets-value='{"1":2,"2":"Source: KRX"}'>Source: KRX</td></tr>
</tbody>
</table><h2>Retail</h2><p>2 pairs from the Retail group have a 180-day correlation coefficient above 0.75 and a 180-day daily price return beta above 0.70 while sitting below -1.0σ on a 20-day moving average: <strong>Lotte Shopping/GS Retail</strong> and <strong>Lotte Shopping/Hyundai Department</strong>.</p><table class="table table-striped">
<colgroup>
<col width="200">
<col width="200">
<col width="70">
<col width="70">
<col width="70">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Comp 1 (Long)"}'>Comp 1 (Long)</td>
<td data-sheets-value='{"1":2,"2":"Comp 2 (Short)"}'>Comp 2 (Short)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Sigma on a 20-day moving average"}'>Sigma on a 20-day moving average</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"180-day correlation coefficient"}'>180-day correlation coefficient</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Cointegration coefficient (180-day price Δ beta)"}'>Cointegration coefficient (180-day price Δ beta)</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Lotte Shopping Co Ltd"}' data-sheets-formula="=Data!R[-1]C[1]"><strong>Lotte Shopping Co Ltd</strong></td>
<td data-sheets-value='{"1":2,"2":"GS Retail Co Ltd"}' data-sheets-formula="=Data!R[-1]C[1]"><strong>GS Retail Co Ltd</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-1.5275880593828013}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula="=R[8]C[-1]"><strong>-1.53</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.8726370244086025}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula="=Sort!R[0]C[3]"><strong>0.87</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.8778679151859091}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula="=Beta!R[2]C[-3]"><strong>0.88</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Lotte Shopping Co Ltd"}' data-sheets-formula="=Data!R[-3]C[5]"><strong>Lotte Shopping Co Ltd</strong></td>
<td data-sheets-value='{"1":2,"2":"Hyundai Department Store Co Ltd"}' data-sheets-formula="=Data!R[-3]C[5]"><strong>Hyundai Department Store Co Ltd</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-1.126049210184334}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula="=R[8]C[-1]"><strong>-1.13</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.9181905655104922}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula="=Sort!R[1]C[3]"><strong>0.92</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.8654420144103113}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula="=Beta!R[0]C[3]"><strong>0.87</strong></td>
</tr>
<tr><td colspan="5" data-sheets-value='{"1":2,"2":"Source: KRX"}'>Source: KRX</td></tr>
</tbody>
</table><h2>Industrials</h2><p>4 pairs from the Retail group have a 180-day correlation coefficient above 0.75 and a 180-day daily price return beta above 0.70 (or close) while sitting below -1.0σ on a 20-day moving average.</p><p>Of these, the Celltrion siblings are the most correlated/cointegrated ones with a substantial diversion. I mentioned their trading dynamics in the previous insight. I will cover <strong>KAI/Hanwha Aerospace </strong>and <strong>Korea Shipbuilding/Hyundai Mipo</strong> in this post.</p><table class="table table-striped">
<colgroup>
<col width="70">
<col width="70">
<col width="70">
<col width="70">
<col width="70">
</colgroup>
<tbody>
<tr>
<td style="width: 230px;" data-sheets-value='{"1":2,"2":"Comp 1 (Long)"}'>Comp 1 (Long)</td>
<td style="width: 194.545px;" data-sheets-value='{"1":2,"2":"Comp 2 (Short)"}'>Comp 2 (Short)</td>
<td style="text-align: right; width: 80px;" data-sheets-value='{"1":2,"2":"Sigma on a 20-day moving average"}'>Sigma on a 20-day moving average</td>
<td style="text-align: right; width: 58.1818px;" data-sheets-value='{"1":2,"2":"180-day correlation coefficient"}'>180-day correlation coefficient</td>
<td style="text-align: right; width: 77.2727px;" data-sheets-value='{"1":2,"2":"Cointegration coefficient (180-day price Δ beta)"}'>Cointegration coefficient (180-day price Δ beta)</td>
</tr>
<tr>
<td style="width: 230px;" data-sheets-value='{"1":2,"2":"Korea Aerospace Industries Ltd"}' data-sheets-formula="=Data!R[-1]C[1]"><strong>Korea Aerospace Industries Ltd</strong></td>
<td style="width: 194.545px;" data-sheets-value='{"1":2,"2":"Hanwha Aerospace Co Ltd"}' data-sheets-formula="=Data!R[-1]C[1]"><strong>Hanwha Aerospace Co Ltd</strong></td>
<td style="text-align: right; width: 80px;" data-sheets-value='{"1":3,"3":-1.2612782453636326}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula="=R[8]C[-1]"><strong>-1.26</strong></td>
<td style="text-align: right; width: 58.1818px;" data-sheets-value='{"1":3,"3":0.9151301901660448}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula="=Sort!R[2]C[3]"><strong>0.92</strong></td>
<td style="text-align: right; width: 77.2727px;" data-sheets-value='{"1":3,"3":0.6164208180229479}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula="=Beta!R[2]C[1]"><strong>0.62</strong></td>
</tr>
<tr>
<td style="width: 230px;" data-sheets-value='{"1":2,"2":"Celltrion, Inc."}' data-sheets-formula="=Data!R[-2]C[3]">Celltrion, Inc.</td>
<td style="width: 194.545px;" data-sheets-value='{"1":2,"2":"Celltrion HealthCare Co Ltd"}' data-sheets-formula="=Data!R[-2]C[3]">Celltrion HealthCare Co Ltd</td>
<td style="text-align: right; width: 80px;" data-sheets-value='{"1":3,"3":-1.178153322167809}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula="=R[8]C[-1]">-1.18</td>
<td style="text-align: right; width: 58.1818px;" data-sheets-value='{"1":3,"3":0.8365102631201596}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula="=Sort!R[2]C[3]">0.84</td>
<td style="text-align: right; width: 77.2727px;" data-sheets-value='{"1":3,"3":0.7643376618440517}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula="=Beta!R[1]C[3]">0.76</td>
</tr>
<tr>
<td style="width: 230px;" data-sheets-value='{"1":2,"2":"Celltrion Pharm Inc"}' data-sheets-formula="=Data!R[-3]C[5]">Celltrion Pharm Inc</td>
<td style="width: 194.545px;" data-sheets-value='{"1":2,"2":"Celltrion HealthCare Co Ltd"}' data-sheets-formula="=Data!R[-3]C[5]">Celltrion HealthCare Co Ltd</td>
<td style="text-align: right; width: 80px;" data-sheets-value='{"1":3,"3":-1.066075796850893}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula="=R[8]C[-1]">-1.07</td>
<td style="text-align: right; width: 58.1818px;" data-sheets-value='{"1":3,"3":0.8799929165201812}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula="=Sort!R[3]C[3]">0.88</td>
<td style="text-align: right; width: 77.2727px;" data-sheets-value='{"1":3,"3":0.7823707069161424}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula="=Beta!R[0]C[7]">0.78</td>
</tr>
<tr>
<td style="width: 230px;" data-sheets-value='{"1":2,"2":"Korea Shipbuilding &amp;Offshore Engn Co Ltd"}' data-sheets-formula="=Data!R[-5]C[9]"><strong>Korea Shipbuilding &amp;Offshore Engn Co Ltd</strong></td>
<td style="width: 194.545px;" data-sheets-value='{"1":2,"2":"Hyundai Mipo Dockyard Co., Ltd."}' data-sheets-formula="=Data!R[-5]C[9]"><strong>Hyundai Mipo Dockyard Co., Ltd.</strong></td>
<td style="text-align: right; width: 80px;" data-sheets-value='{"1":3,"3":-1.0295619383635715}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula="=R[8]C[-1]"><strong>-1.03</strong></td>
<td style="text-align: right; width: 58.1818px;" data-sheets-value='{"1":3,"3":0.9657685058341984}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula="=Sort!R[3]C[3]"><strong>0.97</strong></td>
<td style="text-align: right; width: 77.2727px;" data-sheets-value='{"1":3,"3":0.6811111503062213}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula="=Beta!R[-2]C[11]"><strong>0.68</strong></td>
</tr>
<tr><td colspan="5" style="width: 723.636px;" data-sheets-value='{"1":2,"2":"Source: KRX"}'>Source: KRX</td></tr>
</tbody>
</table>

I track a total of 141 sector pairs in Korea. Starting this insight, I grouped them into three groups: 1. Financials, 2. Retail, and 3. Industrials.Financials4 pairs from the Financials group have a 180-day correlation coefficient above 0.75 (or close) and a 180-day daily price return beta above 0.70 while sitting below -1.0σ on a 20-day moving average. Of these, Hana Financial/Shinhan Financial and Hyundai Marine/DB Insurance warrant attention.









Comp 1 (Long)
Comp 2 (Short)
Sigma on a 20-day moving average
180-day correlation coefficient
Cointegration coefficient (180-day price Δ beta)


Mirae Asset Securities Co Ltd
Samsung Securities Co Ltd
-1.22
0.75
0.70


Mirae Asset Securities Co Ltd
NH Investment &amp; Securities Co Ltd
-1.15
0.74
0.70


Hana Financial Group Inc
Shinhan Financial Group Co., Ltd.
-1.08
0.94
1.02


Hyundai Marine &amp; Fire Insurance Co., Ltd
DB Insurance Co Ltd
-1.07
0.92
0.76

Source: KRX

Retail2 pairs from the Retail group have a 180-day correlation coefficient above 0.75 and a 180-day daily price return beta above 0.70 while sitting below -1.0σ on a 20-day moving average: Lotte Shopping/GS Retail and Lotte Shopping/Hyundai Department.









Comp 1 (Long)
Comp 2 (Short)
Sigma on a 20-day moving average
180-day correlation coefficient
Cointegration coefficient (180-day price Δ beta)


Lotte Shopping Co Ltd
GS Retail Co Ltd
-1.53
0.87
0.88


Lotte Shopping Co Ltd
Hyundai Department Store Co Ltd
-1.13
0.92
0.87

Source: KRX

Industrials4 pairs from the Retail group have a 180-day correlation coefficient above 0.75 and a 180-day daily price return beta above 0.70 (or close) while sitting below -1.0σ on a 20-day moving average.Of these, the Celltrion siblings are the most correlated/cointegrated ones with a substantial diversion. I mentioned their trading dynamics in the previous insight. I will cover KAI/Hanwha Aerospace and Korea Shipbuilding/Hyundai Mipo in this post.









Comp 1 (Long)
Comp 2 (Short)
Sigma on a 20-day moving average
180-day correlation coefficient
Cointegration coefficient (180-day price Δ beta)


Korea Aerospace Industries Ltd
Hanwha Aerospace Co Ltd
-1.26
0.92
0.62


Celltrion, Inc.
Celltrion HealthCare Co Ltd
-1.18
0.84
0.76


Celltrion Pharm Inc
Celltrion HealthCare Co Ltd
-1.07
0.88
0.78


Korea Shipbuilding &amp;Offshore Engn Co Ltd
Hyundai Mipo Dockyard Co., Ltd.
-1.03
0.97
0.68

Source: KRX



Korea Sector Pair Trade: Financials, Retail, & Industrials

<h2>Merger arbitrage yield at +6% now.</h2><p>GS Retail merger swap's arb trade yield is now back to +6%. To be exact, it is 6.31% at the current prices as I am writing this post (1:10 PM in Korea local time).</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/206/668/original/GS+Retail+%26+GS+Home+Shopping+merger+swap+arb+yield.png?1621224773" class="editor-image img-responsive" data-smartkarma-image-id="206668"></figure></section><h2>Here is a quick recap of the stock swap.</h2><p>The swap prices of both GS Retail (the acquiring company) and GS Home Shopping (the target company) were already fixed as follows:</p><p><strong>GS Retail</strong></p><ul>
<li>A: 1-month VWAP (Oct 12~Nov 9, 2020) = ₩34,903</li>
<li>B: 1-week VWAP (Nov 3~9, 2020) = ₩33,098</li>
<li>C: 1-day close (Nov 9, 2020) = ₩33,400</li>
<li><strong>Swap price: (A+B+C)/3 = ₩33,800</strong></li>
</ul><p><strong>GS Home Shopping</strong></p><ul>
<li>A: 1-month VWAP (Oct 12~Nov 9, 2020) = ₩140,216</li>
<li>B: 1-week VWAP (Nov 3~9, 2020) = ₩141,969</li>
<li>C: 1-day close (Nov 9, 2020) = ₩146,100</li>
<li><strong>Swap price: (A+B+C)/3 = ₩142,762</strong></li>
</ul><p>These swap prices give a swap ratio of 4.22368 for 1. <strong>GS Home Shopping shareholders will get 4.22368 GS Retail shares for each GS Home Shopping share.</strong></p><p>So, the swap yield calculation is straightforward. You buy a GS Home Shopping share for the current price of <strong>₩146,400</strong>. Then, you short <strong>4.22368</strong> GS Retail shares for the current price of <strong>₩155,643 </strong>(₩36,850 x 4.22368). Your one GS Home Shopping share will be converted into 4.22368 GS Retail shares. So, it is basically like you instantly gain <strong>₩9,843</strong>, giving a <strong>6.31%</strong> trade yield, excluding transaction costs.</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":"Spread - swap"}'>Spread - swap</td>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"Acquirer"}'>Acquirer</td>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"Target company"}'>Target company</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":36850}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩36,850</td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":146400}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula='=googlefinance(Terms!R[5]C[-1], "price")'>₩146,400</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":33800}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=Terms!R[7]C[0]">₩33,800</td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":142762}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=Terms!R[13]C[-1]">₩142,762</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - x Swap ratio"}'><strong>- Current price x Swap ratio</strong></td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":155642.73328999997}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=R[-2]C[0]*Terms!R[15]C[0]"><strong>₩155,643</strong></td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":146400}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=R[-2]C[0]"><strong>₩146,400</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Spread"}'><strong>Arb trade yield</strong></td>
<td colspan="2" rowspan="1" style="text-align: center;" data-sheets-value='{"1":3,"3":0.06313342411202169}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[-1]C[0]-R[-1]C[1])/R[-1]C[1]"><strong>+6.31%</strong></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><h2><strong>Cancellation risk</strong></h2><p>Of course, there is a cancellation risk. Two potential factors may lead to cancellation.</p><p><strong>The first one is shareholder approval.</strong> The shareholder approval ratio is two-thirds of attending votes and one-thirds of all voting votes. Both companies require shareholder approval. A small-scale merger only requires shareholder approval from an acquiring company. But this didn't qualify as a small-scale merger.</p><p>The shareholder meeting is scheduled for May 28 for both companies, less than 10 days from now.</p><div id="ember3040" data-message-id="386959"><div id="ember3041">
<ul>
<li>
<a href="https://kind.krx.co.kr/common/disclsviewer.do?method=search&amp;acptno=20210325001449&amp;docno=&amp;viewerhost=&amp;viewerport=" target="_blank" rel="noopener">This is the regulatory filing by GS Retail for the EGM.</a><a href="https://kind.krx.co.kr/common/disclsviewer.do?method=search&amp;acptno=20210325001449&amp;docno=&amp;viewerhost=&amp;viewerport=" target="_blank" rel="noopener"></a>
</li>
<li><a href="https://kind.krx.co.kr/common/disclsviewer.do?method=search&amp;acptno=20210325001266&amp;docno=&amp;viewerhost=&amp;viewerport=" target="_blank" rel="noopener">This is the regulatory filing by GS Home Shopping for the EGM.</a></li>
</ul>
<p><strong>The second one is appraisal right exercise cost</strong>. Both companies' appraisal rights exercise prices are already fixed as follows:</p>
<p><strong>GS Retail </strong></p>
<ul>
<li>A: 2-month VWAP (Sep 10~Nov 9, 2020) = ₩34,373</li>
<li>B: 1-month VWAP (Oct 12~Nov 9, 2020) = ₩33,903</li>
<li>C: 1-week VWAP (Nov 3~9, 2020) = ₩33,098</li>
<li>Appraisal rights exercise price: (A+B+C)/3 = ₩34,125</li>
</ul>
<p><strong>GS Home Shopping</strong></p>
<ul>
<li>A: 2-month VWAP (Sep 10~Nov 9, 2020) = ₩134,380</li>
<li>B: 1-month VWAP (Oct 12~Nov 9, 2020) = ₩140,216</li>
<li>C: 1-week VWAP (Nov 3~9, 2020) = ₩141,969</li>
<li>Appraisal rights exercise price: (A+B+C)/3 = ₩138,855</li>
</ul>
<p>The dissident shareholders opposing the merger can request the companies to purchase their shares at the appraisal rights exercise price. GS Retail and GS Home Shopping set the ceiling of the total cost for stock repurchase at <strong>a combined ₩350bil</strong>. If<strong> the total cost for both companies reaches ₩350bil, they will consider canceling the merger. </strong>But that doesn't mean that they will automatically cancel the merger. Some cases in the past had a merger go through despite the total stock repurchase cost exceeded the ceiling set by a company.</p>
<p>Only those shareholders who held onto the shares until November 11 last year and then gave a dissenting opinion between May 13~27 this year are eligible to exercise the appraisal rights from May 28 to June 17.</p>
</div></div>

Merger arbitrage yield at +6% now.GS Retail merger swap's arb trade yield is now back to +6%. To be exact, it is 6.31% at the current prices as I am writing this post (1:10 PM in Korea local time).Here is a quick recap of the stock swap.The swap prices of both GS Retail (the acquiring company) and GS Home Shopping (the target company) were already fixed as follows:GS Retail
A: 1-month VWAP (Oct 12~Nov 9, 2020) = ₩34,903
B: 1-week VWAP (Nov 3~9, 2020) = ₩33,098
C: 1-day close (Nov 9, 2020) = ₩33,400
Swap price: (A+B+C)/3 = ₩33,800
GS Home Shopping
A: 1-month VWAP (Oct 12~Nov 9, 2020) = ₩140,216
B: 1-week VWAP (Nov 3~9, 2020) = ₩141,969
C: 1-day close (Nov 9, 2020) = ₩146,100
Swap price: (A+B+C)/3 = ₩142,762
These swap prices give a swap ratio of 4.22368 for 1. GS Home Shopping shareholders will get 4.22368 GS Retail shares for each GS Home Shopping share.So, the swap yield calculation is straightforward. You buy a GS Home Shopping share for the current price of ₩146,400. Then, you short 4.22368 GS Retail shares for the current price of ₩155,643 (₩36,850 x 4.22368). Your one GS Home Shopping share will be converted into 4.22368 GS Retail shares. So, it is basically like you instantly gain ₩9,843, giving a 6.31% trade yield, excluding transaction costs.







Spread - swap
Acquirer
Target company


Current price
₩36,850
₩146,400


Swap price
₩33,800
₩142,762


- Current price x Swap ratio
₩155,643
₩146,400


Arb trade yield
+6.31%

Source: DART &amp; KRX

Cancellation riskOf course, there is a cancellation risk. Two potential factors may lead to cancellation.The first one is shareholder approval. The shareholder approval ratio is two-thirds of attending votes and one-thirds of all voting votes. Both companies require shareholder approval. A small-scale merger only requires shareholder approval from an acquiring company. But this didn't qualify as a small-scale merger.The shareholder meeting is scheduled for May 28 for both companies, less than 10 days from now.


This is the regulatory filing by GS Retail for the EGM.

This is the regulatory filing by GS Home Shopping for the EGM.

The second one is appraisal right exercise cost. Both companies' appraisal rights exercise prices are already fixed as follows:
GS Retail 

A: 2-month VWAP (Sep 10~Nov 9, 2020) = ₩34,373
B: 1-month VWAP (Oct 12~Nov 9, 2020) = ₩33,903
C: 1-week VWAP (Nov 3~9, 2020) = ₩33,098
Appraisal rights exercise price: (A+B+C)/3 = ₩34,125

GS Home Shopping

A: 2-month VWAP (Sep 10~Nov 9, 2020) = ₩134,380
B: 1-month VWAP (Oct 12~Nov 9, 2020) = ₩140,216
C: 1-week VWAP (Nov 3~9, 2020) = ₩141,969
Appraisal rights exercise price: (A+B+C)/3 = ₩138,855

The dissident shareholders opposing the merger can request the companies to purchase their shares at the appraisal rights exercise price. GS Retail and GS Home Shopping set the ceiling of the total cost for stock repurchase at a combined ₩350bil. If the total cost for both companies reaches ₩350bil, they will consider canceling the merger. But that doesn't mean that they will automatically cancel the merger. Some cases in the past had a merger go through despite the total stock repurchase cost exceeded the ceiling set by a company.
Only those shareholders who held onto the shares until November 11 last year and then gave a dissenting opinion between May 13~27 this year are eligible to exercise the appraisal rights from May 28 to June 17.


GS Retail Merger Arbitrage: Yield Back at +6% & Local Arb Traders in Action

<p>GS Retail merger swap now gives an arb yield of 4.27% at the current prices. If you short 4.22368 GS Retail shares at the current price of ₩36,250 and buy one GS Home Shopping share at the current price of ₩146,400, you will virtually fix your trade yield at 4.27%.</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":"Spread - swap"}'>Merger swap arb trade yield</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Acquirer"}'>GS Retail</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Target company"}'>GS Home Shopping</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Current price"}'>Current price</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":36250}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula='=googlefinance(Terms!R[2]C[0], "price")'>₩36,250</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":146400}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula='=googlefinance(Terms!R[5]C[-1], "price")'>₩146,400</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap price"}'>Swap price</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":33800}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=Terms!R[7]C[0]">₩33,800</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":142762}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=Terms!R[13]C[-1]">₩142,762</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Gain/loss"}'><strong>Gain/loss</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.06758620689655172}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[-2]C[0]-R[-1]C[0])/R[-2]C[0]"><strong>6.76%</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.024849726775956284}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[-1]C[0]-R[-2]C[0])/R[-2]C[0]"><strong>-2.48%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Spread"}'><strong>Spread</strong></td>
<td colspan="2" rowspan="1" style="text-align: right;" data-sheets-value='{"1":3,"3":0.04273648012059543}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=R[-1]C[0]+R[-1]C[1]"><strong>4.27%</strong></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><div>
<p>When short-selling resumes this Monday, the arb yield stayed at 1.59%. It has gradually climbed back to a +4% level now. Like the previous local merger swap cases, GS seems to require as many arb traders as possible to minimize stock repurchase cost.</p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/204/782/original/GS+Retail+%26+GS+Home+Shopping+merger+swap+arb+yield.png?1620351095" class="editor-image img-responsive" data-smartkarma-image-id="204782"></figure></section><hr>
<p>For those who aren't familiar with this event, here is a quick recap.</p>
<p>GS Retail will merge with GS Home Shopping through a stock swap. The GS Home Shopping shareholders will get 4.22368 GS Retail shares for each GS Home Shopping share.</p>
</div><div><div><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 (₩B)"}'>Overview (₩B)</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Type"}'>Type</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Stock swap"}'>Stock swap</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Acquirer"}'>Acquirer</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"GS Retail Co Ltd"}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>GS Retail Co Ltd (007070)</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":"GS Home Shopping Inc."}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>GS Home Shopping Inc. (028150)</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Offering price"}'><strong>Swap price for GS Retail</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":33800}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}'><strong>₩33,800</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Target price"}'><strong>Swap price for GS Home Shopping</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":142762}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}'><strong>₩142,762</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap ratio"}'><strong>Swap ratio</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":4.2236834}' data-sheets-numberformat='{"1":2,"2":"#,##0.0000000","3":1}'><strong>4.2236834</strong></td>
</tr>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table></div></div><div>The next big day is the shareholder meeting scheduled for May 28. Yes, there is a cancellation risk if not getting shareholder approval on May 28. Combining the NPS and the friendly shareholders (Hanjin), the controlling stake reaches 72% for Retail and 50% for Home Shopping. It seems that the risk of not getting shareholder approval is pretty low.</div><div>
<br><table class="table table-striped">
<colgroup>
<col width="300">
<col width="300">
</colgroup>
<tbody>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Timetable"}' data-sheets-note="Sang Hyun Park: We have to buy shares until BOD+1 to be eligible to receive stock purchase rights. We then have to notify our dissenting opinion until the end of dissenting opinion notice period.">Timetable</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"EGM"}'><strong>Shareholder meeting</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44344}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'><strong>2021. 5. 28</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Stock purchase right exercise begins"}'>Stock purchase right exercise (GS Retail &amp; GS Home Shopping)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44344}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'>2021. 5. 28 ~ 6. 29</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Trade suspension begins - GS Home Shopping"}'><strong>Trade suspension (GS Home Shopping)</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44376}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'><strong>2021. 6. 29 ~ 7. 15</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Listing"}'>Listing</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44393}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'>2021. 7. 16</td>
</tr>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table>
<p>Also, the stock purchase cost ceiling is set at ₩350.0B combined for both. The exercise prices are currently 5.73% and 5.22% below the current prices for GS Retail and GS Home Shopping. </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":"Spread - stock purchase"}'>Spread - stock purchase</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Acquirer"}'>GS Retail</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Target company"}'>GS Home Shopping</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Current price"}'>Current price</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":36200}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=R[-35]C[0]">₩36,200</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":146500}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=R[-35]C[0]">₩146,500</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Exercise price"}'>Exercise price</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":34125}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=Terms!R[-16]C[0]">₩34,125</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":138855}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=Terms!R[-15]C[-1]">₩138,855</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Spread"}'><strong>Spread</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.057320441988950276}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[-1]C[0]-R[-40]C[0])/R[-40]C[0]"><strong>-5.73%</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.05218430034129693}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[-1]C[0]-R[-40]C[0])/R[-40]C[0]"><strong>-5.22%</strong></td>
</tr>
<tr><td colspan="3" data-sheets-value='{"1":2,"2":"Source: DART &amp; KRX"}'>Source: DART &amp; KRX</td></tr>
</tbody>
</table>
</div>

GS Retail merger swap now gives an arb yield of 4.27% at the current prices. If you short 4.22368 GS Retail shares at the current price of ₩36,250 and buy one GS Home Shopping share at the current price of ₩146,400, you will virtually fix your trade yield at 4.27%.







Merger swap arb trade yield
GS Retail
GS Home Shopping


Current price
₩36,250
₩146,400


Swap price
₩33,800
₩142,762


Gain/loss
6.76%
-2.48%


Spread
4.27%

Source: DART &amp; KRX


When short-selling resumes this Monday, the arb yield stayed at 1.59%. It has gradually climbed back to a +4% level now. Like the previous local merger swap cases, GS seems to require as many arb traders as possible to minimize stock repurchase cost.

For those who aren't familiar with this event, here is a quick recap.
GS Retail will merge with GS Home Shopping through a stock swap. The GS Home Shopping shareholders will get 4.22368 GS Retail shares for each GS Home Shopping share.






Overview (₩B)

Type
Stock swap


Acquirer
GS Retail Co Ltd (007070)


Target company
GS Home Shopping Inc. (028150)


Swap price for GS Retail
₩33,800


Swap price for GS Home Shopping
₩142,762


Swap ratio
4.2236834

Source: DART

The next big day is the shareholder meeting scheduled for May 28. Yes, there is a cancellation risk if not getting shareholder approval on May 28. Combining the NPS and the friendly shareholders (Hanjin), the controlling stake reaches 72% for Retail and 50% for Home Shopping. It seems that the risk of not getting shareholder approval is pretty low.
 





Timetable

Shareholder meeting
2021. 5. 28


Stock purchase right exercise (GS Retail &amp; GS Home Shopping)
2021. 5. 28 ~ 6. 29


Trade suspension (GS Home Shopping)
2021. 6. 29 ~ 7. 15


Listing
2021. 7. 16

Source: DART


Also, the stock purchase cost ceiling is set at ₩350.0B combined for both. The exercise prices are currently 5.73% and 5.22% below the current prices for GS Retail and GS Home Shopping. 








Spread - stock purchase
GS Retail
GS Home Shopping


Current price
₩36,200
₩146,500


Exercise price
₩34,125
₩138,855


Spread
-5.73%
-5.22%

Source: DART &amp; KRX




GS Retail Merger Swap Arb Yield Currently at 4.27%: Trade It Now Rather than Later

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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Quantitative Analysis

<p>Short selling has finally resumed in Korea and it has been a busy couple of days on that front with foreign investors piling into stocks that have run up more than their peers over the last year and are potentially overvalued.</p><p>Long/short pairs could be implemented in Korea during the short sell ban if you had long inventory or if there were listed single stock futures on the short leg.</p><p>With short selling permitted on constituents of the <a href="https://www.smartkarma.com/entities/korea-stock-exchange-kospi-200-index" target="_blank" data-smartkarma-citation="entities:26021:1" rel="noopener">Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX)</a>, we take a look at long/short pairs where both stocks are members of the index. These pairs belong to the same GICS sub-industry, are correlated and exhibit mean-reversion. We also use short sale data from the last couple of trading sessions to see which stocks are being targeted by short sellers.</p>

Short selling has finally resumed in Korea and it has been a busy couple of days on that front with foreign investors piling into stocks that have run up more than their peers over the last year and are potentially overvalued.Long/short pairs could be implemented in Korea during the short sell ban if you had long inventory or if there were listed single stock futures on the short leg.With short selling permitted on constituents of the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX), we take a look at long/short pairs where both stocks are members of the index. These pairs belong to the same GICS sub-industry, are correlated and exhibit mean-reversion. We also use short sale data from the last couple of trading sessions to see which stocks are being targeted by short sellers.

Korea Pair Trades: High Risk/Reward Names with Short Sell Screen

South Korea

Dongsuh Companies Inc. imports, manufactures, processes, markets and distributes general food products such as vegetable cooking oils. The Company also produces packaging materials and ceramic products including food and oil containers. Dongsuh has a cooperative relationship with Kraft Foods Inc.

BGF Retail Co., Ltd. operates convenience stores. The Company retails delicatessen, sweets, snacks, beverages, tobacco, and other related products. BGF Retail markets its products throughout South Korea.

E-MART Inc. operates E-Mart discount stores. The Company retails food, clothing, household goods, electronics, and other items through several branch stores.

Hyundai G.F. Holdings Co., Ltd. operates as a office furniture distribution company. The Company produces built in furniture, upcycling waste materials bottles furniture, wood furniture, and other related products. Hyundai G.F. Holdings also offers food, information and technology, groceries sale, and food materials distribution services.

BGF Retail Co. Ltd. operates convenience store chains called CU in South Korea. The Company, through company owned stores or franchise, sells general groceries such as food and beverage.  The Company also offers ticketing, parcel pick-up, ATM machine and bill payment service.

CJ Freshway Corp. markets and provides various groceries to food service companies and restaurants.  The Company also caters to company's restaurants, schools, airports, and private restaurants and processes agricultural products.

LG H&H Co., Ltd. manufactures and distributes cosmetics. The Company produces whoo, o hui, sum 37, basic cosmetics, color cosmetics, and other related products. LG H&H also produces toothpaste, soap, detergents, healthy, personal care, and refreshing products.

AMOREPACIFIC Group is an investment holding company. The Company, through its subsidiaries, produce cosmetics and toiletries.

Cosmax, Inc. is a cosmetics manufacturer. The Company develops and produces a variety of cosmetics for men and women, such as basic and special skin care, makeup, hair care, and other beauty products. Cosmax manufactures its products on original equipment manufacturing (OEM) basis.

Ottogi Corporation manufactures food seasonings and instant food, such as mayonnaise, ketchup, salad dressing, sesame and cooking oils, and instant curry. The Company also produces frozen salads, fruit preservatives, instant noodles, and canned tuna.

Sun Art Retail Group Ltd. operates hypermarkets.  The Company retails food and offers amenities such as restaurants, automated teller machines, pharmacies and dry cleaners.

Chefs' Warehouse Inc. is a premier distributor of specialty food products in the United States. The Company is focused on serving the specific needs of chefs who own and/or operate restaurants, fine dining establishments, country clubs, hotels, caterers, culinary schools and specialty food stores.

The Andersons, Inc. merchandises grain, operates grain elevator facilities, distributes wholesale agricultural fertilizer, and distributes agricultural inputs to dealers and farmers.  The Company also manufactures lawn fertilizer and corncob-based products, and purchases, sells, repairs, and leases railcars. In addition, The Andersons operates retail stores and a distribution center.

Sheng Siong Group Ltd is a retailer in Singapore.  The Company operates a groceries chain across Singapore. Sheng Siong's stores provide fresh and chilled produce, seafood, meat and vegetables, processed, packaged and preserved food products as well as general merchandise such as toiletries and essential household items.

Ingles Markets, Incorporated operates a supermarket chain in the southeastern United States.  The Company also owns and operates neighborhood shopping centers.

CREATE SD HOLDINGS Co Ltd operates a chain of drug stores based in Kanagawa. The Company sells medical supplies, cosmetics, foodstuff, baby products and daily goods. CREATE SD HOLDINGS also sells prescription medicine.

Mitsubishi Shokuhin Co.,Ltd. is a wholesaler of processed food. The Company sells a varietyof groceries including canned products, dried food, frozen food, pet food, beverages, and liquors.

Casino Guichard-Perrachon SA operates a wide range of hypermarkets, supermarkets, and  convenience stores.  The Company operates in Asia and Europe.

Metro AG operates retail stores and markets products over the Internet.  The Company operates cash and carry stores, supermarkets and hypermarkets, consumer electronics stores, department stores, theme stores, and online sales services.

Philippine Seven Corporation licenses to operate 7-Eleven stores in the Philippines. The Company also leased commercial properties and constructed retail store building.

GS Retail Co., Ltd. operates a chain of retail stores. The Company provides beauty and skincare products, candles, gifts, perfumes, ornaments, bathroom accessories, and other products. GS Retail serves its customers in the Republic of South Korea.

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