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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

<ul>
<li>It has been an interesting year and short interest has varied a lot across countries, sectors and stocks. We look at changes in Hong Kong, Japan, Korea and Taiwan.</li>
<li>Shorts have soared in Korea following the resumption of short selling, while short interest has increased in the other countries too.</li>
<li>Ping An Insurance and BYD had the biggest short covering, while China Merchants Bank saw the largest increase in shorts over the year.</li>
</ul>


It has been an interesting year and short interest has varied a lot across countries, sectors and stocks. We look at changes in Hong Kong, Japan, Korea and Taiwan.
Shorts have soared in Korea following the resumption of short selling, while short interest has increased in the other countries too.
Ping An Insurance and BYD had the biggest short covering, while China Merchants Bank saw the largest increase in shorts over the year.


Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

<div class="content-highlight">
<p>In this insight, we discuss about the increasing signs that the crisis involving the global supply chains may be thawing out. This insight is broken down into the following three parts:</p>
<p><strong> I. Five Major Reasons Causing Global Supply Chain Problems</strong></p>
<p><strong>II. Global Supply Chain Crisis - Signs of Thawing Out?</strong></p>
<p><strong>III. Long/Short Ideas Under the Thesis of the Global Supply Chain Crisis Showing Signs of Thawing Out [Long Orion Corp &amp; Short HMM]</strong></p>
</div>


In this insight, we discuss about the increasing signs that the crisis involving the global supply chains may be thawing out. This insight is broken down into the following three parts:
 I. Five Major Reasons Causing Global Supply Chain Problems
II. Global Supply Chain Crisis - Signs of Thawing Out?
III. Long/Short Ideas Under the Thesis of the Global Supply Chain Crisis Showing Signs of Thawing Out [Long Orion Corp &amp; Short HMM]


Global Supply Chain Crisis - Signs of Thawing Out?

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

<p><a href="https://www.smartkarma.com/entities/sm-line-corp" target="_blank" data-smartkarma-citation="entities:34535:1" rel="noopener">SM Line Corp (076710 KS)</a> (SML) is looking to raise US$710m by selling a mix of primary and secondary shares in its South Korea IPO.</p><p>SML, a subsidiary of Samra Midas (SM) Group, is a global shipping company that mainly engages in maritime freight transportation. It also operates a construction business that provides housing construction and civil engineering services.</p><p>We will take a look at SML’s fundamentals, industry outlook and share our thoughts on valuation.</p>

SM Line Corp (076710 KS) (SML) is looking to raise US$710m by selling a mix of primary and secondary shares in its South Korea IPO.SML, a subsidiary of Samra Midas (SM) Group, is a global shipping company that mainly engages in maritime freight transportation. It also operates a construction business that provides housing construction and civil engineering services.We will take a look at SML’s fundamentals, industry outlook and share our thoughts on valuation.

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.

<p>In a regulatory filing, HMM said it had decided to repay 600 billion won worth of permanent CB (#191 owned by KOBC: Korea Ocean Business Corporation) in advance. That is, HMM will exercise its right to claim for early redemption. If the CB holder (KOBC) agrees, HMM will make the CB repayment on December 9.</p><p><a href="https://engkind.krx.co.kr/common/disclsviewer.do?method=search&amp;acptNo=20211026000136&amp;docno=&amp;formProcsCd=070&amp;language=english" target="_blank" rel="noopener">The link to the English regulatory filing is here.</a></p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/237/523/original/1.png?1635227576" class="editor-image img-responsive" data-smartkarma-image-id="237523"></figure></section><div class="content-caption">(Source: KRX KIND)</div><p>The #191 perpetual convertible bonds were exclusively issued to KOBC in March 2017. The conversion price is ₩7,173, and if KOBC converts all of them, it will obtain 83,647,009 ordinary shares, causing a share dilution of 16.4%.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/237/524/original/image?1635227656" class="editor-image img-responsive" data-smartkarma-image-id="237524"></figure><div class="content-caption">(Source: DART)</div><div class="content-highlight"><p><strong>However, there is a catch here. Suppose the KOBC exercises the right to claim conversion before the scheduled repayment date. In that case, the CB will be converted to HMM's new stock, regardless of HMM's decision to exercise its right to claim for early redemption.</strong></p></div><p>Yes, the KOBC reserves the right to convert this CB into HMM stocks at ₩7,173 per share at any time. It is still a quarter of HMM's current share price. The market profit obtained by converting CB into stock alone amounts to about 1.86 trillion won.</p>

In a regulatory filing, HMM said it had decided to repay 600 billion won worth of permanent CB (#191 owned by KOBC: Korea Ocean Business Corporation) in advance. That is, HMM will exercise its right to claim for early redemption. If the CB holder (KOBC) agrees, HMM will make the CB repayment on December 9.The link to the English regulatory filing is here.(Source: KRX KIND)The #191 perpetual convertible bonds were exclusively issued to KOBC in March 2017. The conversion price is ₩7,173, and if KOBC converts all of them, it will obtain 83,647,009 ordinary shares, causing a share dilution of 16.4%.(Source: DART)However, there is a catch here. Suppose the KOBC exercises the right to claim conversion before the scheduled repayment date. In that case, the CB will be converted to HMM's new stock, regardless of HMM's decision to exercise its right to claim for early redemption.Yes, the KOBC reserves the right to convert this CB into HMM stocks at ₩7,173 per share at any time. It is still a quarter of HMM's current share price. The market profit obtained by converting CB into stock alone amounts to about 1.86 trillion won.

HMM Perpetual Bond Conversion Situation Update for Short Position

<p>Today (October 13), HMM posted a "CEO Letter to Shareholders" on its website.</p><div class="content-highlight"><p><a href="http://www.hmm21.com/cms/company/irk/disclosure/dart/1209953_12686.jsp" target="_blank" rel="noopener">Here is the link to the HMM CEO Letter to Shareholders.</a></p></div><p>As shareholders' dissatisfaction grew over <a href="https://www.smartkarma.com/entities/hmm-co-ltd" target="_blank" data-smartkarma-citation="entities:13494:1" rel="noopener">HMM Co., Ltd. (011200 KS)</a> 's recent sharp decline in share price, the company's CEO Bae Jae-hoon took out a shareholder-friendly policy card including dividends to appease shareholders.</p><p>The first sentence of this letter is straightforward and clear: <strong>"We are reviewing shareholder-friendly policies due to shareholders' concerns about the share price decline."</strong> In fact, HMM shares have been corrected more than 40% since peaking at the end of May.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/234/908/original/6.png?1634131311" class="editor-image img-responsive" data-smartkarma-image-id="234908"></figure><hr>
<p><strong>So let's take a look at what this CEO letter contains. There are some pretty significant parts.</strong></p></section><h2>1. Dividend</h2><section class="figure"><p>The first is a dividend. HMM has explicitly stated that it is considering a dividend payment.</p>
<p>However, the company said that at this time, there is no available profit that can pay dividends under the local commercial law. It is because HMM still has a massive accumulated deficit, which stood at ₩4.44T as of the end of 2020. According to local commercial law, dividends are not allowed when there is a deficit. <strong>But the company said that the deficit situation is getting better, so it will actively consider paying dividends when dividend-payable profits are generated. FYI, it will only know the status of this year's deficit size at the end of this year.</strong></p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/234/909/original/1.png?1634131586" class="editor-image img-responsive" data-smartkarma-image-id="234909"></figure></section><h2>2. Massive CB Conversion (Share Dilution) Risk</h2><p>The second is the massive CB conversion risk. That is, this letter tried to address the concern about the possible conversion of the ₩600B perpetual convertible bonds held by KOBC into stocks: the '#191 CB' issued in March 2017. The conversion price is ₩7,173, and if KOBC converts all of them, it will obtain 83,647,009 ordinary shares, causing a share dilution of 16.4%.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/234/923/original/3.png?1634134729" class="editor-image img-responsive" data-smartkarma-image-id="234923"></figure><p>Now, HMM stressed in this letter that it might opt for early full repayment of these CBs as the company is in good cash condition due to the recent brisk business. <strong>But there is a catch here. It also clarified that even if it wanted early full repayment, it wouldn't be able to refuse CB conversion into stocks if the bondholder (KOBC: Korea Ocean Business Corporation) made a request.</strong></p></section><div>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/234/910/original/2.png?1634132720" class="editor-image img-responsive" data-smartkarma-image-id="234910"></figure><h2>3. Illegal shorting activities</h2>
<section class="figure"><p>This part is also fun. First, HMM said that it had not found any illegal short-selling activities so far.</p>
<p>However, <strong>local retail investors are arguing that KDB (Korea Development Bank) and KOBC are artificially lowering the stock price to facilitate the sale of their controlling stake. In response, HMM adamantly denied the allegation.</strong> HMM also revealed that KDB and KOBC are not lending their HMM shares to short-sellers.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/234/920/original/4.png?1634133557" class="editor-image img-responsive" data-smartkarma-image-id="234920"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/234/921/original/5.png?1634133615" class="editor-image img-responsive" data-smartkarma-image-id="234921"></figure></section>
</div>

Today (October 13), HMM posted a "CEO Letter to Shareholders" on its website.Here is the link to the HMM CEO Letter to Shareholders.As shareholders' dissatisfaction grew over HMM Co., Ltd. (011200 KS) 's recent sharp decline in share price, the company's CEO Bae Jae-hoon took out a shareholder-friendly policy card including dividends to appease shareholders.The first sentence of this letter is straightforward and clear: "We are reviewing shareholder-friendly policies due to shareholders' concerns about the share price decline." In fact, HMM shares have been corrected more than 40% since peaking at the end of May.
So let's take a look at what this CEO letter contains. There are some pretty significant parts.1. DividendThe first is a dividend. HMM has explicitly stated that it is considering a dividend payment.
However, the company said that at this time, there is no available profit that can pay dividends under the local commercial law. It is because HMM still has a massive accumulated deficit, which stood at ₩4.44T as of the end of 2020. According to local commercial law, dividends are not allowed when there is a deficit. But the company said that the deficit situation is getting better, so it will actively consider paying dividends when dividend-payable profits are generated. FYI, it will only know the status of this year's deficit size at the end of this year.
2. Massive CB Conversion (Share Dilution) RiskThe second is the massive CB conversion risk. That is, this letter tried to address the concern about the possible conversion of the ₩600B perpetual convertible bonds held by KOBC into stocks: the '#191 CB' issued in March 2017. The conversion price is ₩7,173, and if KOBC converts all of them, it will obtain 83,647,009 ordinary shares, causing a share dilution of 16.4%.Now, HMM stressed in this letter that it might opt for early full repayment of these CBs as the company is in good cash condition due to the recent brisk business. But there is a catch here. It also clarified that even if it wanted early full repayment, it wouldn't be able to refuse CB conversion into stocks if the bondholder (KOBC: Korea Ocean Business Corporation) made a request.
3. Illegal shorting activities
This part is also fun. First, HMM said that it had not found any illegal short-selling activities so far.
However, local retail investors are arguing that KDB (Korea Development Bank) and KOBC are artificially lowering the stock price to facilitate the sale of their controlling stake. In response, HMM adamantly denied the allegation. HMM also revealed that KDB and KOBC are not lending their HMM shares to short-sellers.



HMM CEO Letter to Shareholders Concerning Share Price Decline

South Korea

HMM Co., Ltd. provides marine transportation services.  The Company commands different types of vessels including full container vessels, oil tankers, car carriers, LNG carriers, bulk carriers, and tramps.

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HMM Co., Ltd. (011200 KS)

Asia: The Year in Shorts

There have been large increases and decreases in short interest on stocks across HK, Japan, Korea and Taiwan over the year. We look at the biggest...

Brian Freitas

Global Supply Chain Crisis - Signs of Thawing Out?

In this insight, we discuss about the increasing signs that the crisis involving the global supply chains may be thawing out.

Douglas Kim

SM Line IPO - Opportunistic Listing

SM Line Corp (076710 KS) (SML) is looking to raise US$710m by selling a mix of primary and secondary shares in its South Korea IPO.

Sumeet Singh

HMM Perpetual Bond Conversion Situation Update for Short Position

This post examines and discusses the latest development in HMM's perpetual bond (exclusively owned by KOBC) conversion situation.

Sanghyun Park

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Asia: The Year in Shorts

There have been large increases and decreases in short interest on stocks across HK, Japan, Korea and Taiwan over the year. We look at the biggest...

Brian Freitas

Global Supply Chain Crisis - Signs of Thawing Out?

In this insight, we discuss about the increasing signs that the crisis involving the global supply chains may be thawing out.

Douglas Kim

SM Line IPO - Opportunistic Listing

SM Line Corp (076710 KS) (SML) is looking to raise US$710m by selling a mix of primary and secondary shares in its South Korea IPO.

Sumeet Singh

HMM Perpetual Bond Conversion Situation Update for Short Position

This post examines and discusses the latest development in HMM's perpetual bond (exclusively owned by KOBC) conversion situation.

Sanghyun Park

HMM CEO Letter to Shareholders Concerning Share Price Decline

HMM CEO posted a letter to shareholders on the corporate website today concerning the recent share price decline. This letter contains some...

Sanghyun Park