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.

Equity Capital Markets

<h2>Listing schedule</h2><p>First, it was confirmed that the Financial Supervisory Service discussed the scope of correction and listing schedule with Kakao Pay during the Chuseok holiday.</p><p>The results of this discussion have not yet been leaked to the market. However, the local street's general view is that the listing schedule will not be substantially delayed. Kakao Pay's listing schedule has already been postponed once, and delaying it until next year could be a significant burden for the Financial Supervisory Service as well.</p><div class="content-highlight"><p><strong>The majority view in the local market is that Kakao Pay will submit a revised securities declaration at the end of September (likely sometime next week). </strong><strong>And the bookbuilding will begin around mid-October after the 15 business day grace period. </strong><strong>In this case, the listing date is likely to be around mid-November.</strong></p></div><h2>What changes are to be added?</h2><p>Kakao Pay has so far provided a service that recommends insurance or financial investment products that meet individual needs through the app. The FSC concluded that this was a product brokerage service, not an advertisement.</p><p>Of course, a business license is required to broker financial products in the Korean market. An insurance broker license is required to broker insurance, and a brokerage license is needed to broker financial investment products under the Capital Market Act.</p><p>Currently, Kakao Pay does not have these licenses. Instead, Kakao Pay's subsidiaries, KP Insurance Service, and Kakao Pay Securities, hold these financial product brokerage licenses. However, the FSC raised the issue, saying that this is a license owned by a subsidiary, not a license of Kakao Pay.</p><p>Therefore, the FSC requested Kakao Pay to immediately stop these services from September 25, when the guidance period of the Financial Consumer Protection Act ends. In this regard, Kakao Pay has already temporarily suspended insurance product brokerage services such as car insurance, companion animal insurance, and overseas travel insurance.</p><p>Kakao Pay has no choice but to include the newly changed regulatory environment and the resulting temporary suspension of services in the revised securities report. Then, the question is whether a lowering of the offering price is inevitable.</p><div class="content-highlight">
<p><strong>The general view of the local market is that a downward revision of the offering price is inevitable. As 32% of sales in the first half of this year were from the brokerage of financial products, future growth and sales estimates will have to be revised down.</strong></p>
<p><strong>Of course, Kakao Pay can resume these financial product brokerage services under the name of its subsidiaries or by directly obtaining a license. However, the problem is that the cost structure will be significantly different if it becomes a financial product brokerage service rather than an advertisement. That is, it is inevitable </strong><strong>to make a major revision to whether Kakao Pay can achieve the previously estimated sales/profit growth rate with this cost structure.</strong></p>
</div>

Listing scheduleFirst, it was confirmed that the Financial Supervisory Service discussed the scope of correction and listing schedule with Kakao Pay during the Chuseok holiday.The results of this discussion have not yet been leaked to the market. However, the local street's general view is that the listing schedule will not be substantially delayed. Kakao Pay's listing schedule has already been postponed once, and delaying it until next year could be a significant burden for the Financial Supervisory Service as well.The majority view in the local market is that Kakao Pay will submit a revised securities declaration at the end of September (likely sometime next week). And the bookbuilding will begin around mid-October after the 15 business day grace period. In this case, the listing date is likely to be around mid-November.What changes are to be added?Kakao Pay has so far provided a service that recommends insurance or financial investment products that meet individual needs through the app. The FSC concluded that this was a product brokerage service, not an advertisement.Of course, a business license is required to broker financial products in the Korean market. An insurance broker license is required to broker insurance, and a brokerage license is needed to broker financial investment products under the Capital Market Act.Currently, Kakao Pay does not have these licenses. Instead, Kakao Pay's subsidiaries, KP Insurance Service, and Kakao Pay Securities, hold these financial product brokerage licenses. However, the FSC raised the issue, saying that this is a license owned by a subsidiary, not a license of Kakao Pay.Therefore, the FSC requested Kakao Pay to immediately stop these services from September 25, when the guidance period of the Financial Consumer Protection Act ends. In this regard, Kakao Pay has already temporarily suspended insurance product brokerage services such as car insurance, companion animal insurance, and overseas travel insurance.Kakao Pay has no choice but to include the newly changed regulatory environment and the resulting temporary suspension of services in the revised securities report. Then, the question is whether a lowering of the offering price is inevitable.
The general view of the local market is that a downward revision of the offering price is inevitable. As 32% of sales in the first half of this year were from the brokerage of financial products, future growth and sales estimates will have to be revised down.
Of course, Kakao Pay can resume these financial product brokerage services under the name of its subsidiaries or by directly obtaining a license. However, the problem is that the cost structure will be significantly different if it becomes a financial product brokerage service rather than an advertisement. That is, it is inevitable to make a major revision to whether Kakao Pay can achieve the previously estimated sales/profit growth rate with this cost structure.


Kakao Pay IPO Schedule Update & Short Trading Idea on Kakao Bank

Global Emerging Market Equities, Propitious Research

Wium Malan, CFA

Global Emerging Market Equities

Independent, Fundamental Quantitative Research

Propitious Research

Fully independent, fundamental and quantitative equity research, focused on companies in the Telecommunication, Media, Technology, Internet and Healthcare sectors in the Global Emerging Markets. Idea generation focused on Quality stocks, trading below their intrinsic Value, with sound Corporate Governance.

Thematic (Sector/Industry)

<p>This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity indices. </p><p><strong><em>Companies mentioned this week:</em></strong></p><p><a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a>, <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a>, <a href="https://www.smartkarma.com/entities/huawei-technologies-co-ltd" target="_blank" data-smartkarma-citation="entities:8231:1" rel="noopener">Huawei Technology (40978Z CH)</a>, <a href="https://www.smartkarma.com/entities/bytedance-technology" target="_blank" data-smartkarma-citation="entities:27936:1" rel="noopener">ByteDance (1439927D CH)</a>, <a href="https://www.smartkarma.com/entities/baidu-inc-a55ca720-5968-48f0-8194-ac94390d065c" target="_blank" data-smartkarma-citation="entities:32212:1" rel="noopener">Baidu (9888 HK)</a>, <a href="https://www.smartkarma.com/entities/ant-group-co-ltd" target="_blank" data-smartkarma-citation="entities:24240:1" rel="noopener">Ant Financial Services Group (6688 HK)</a>, <a href="https://www.smartkarma.com/entities/taiwan-semiconductor-manufacturing-company" target="_blank" data-smartkarma-citation="entities:11230:1" rel="noopener">TSMC (2330 TT)</a>, <a href="https://www.smartkarma.com/entities/kakao-corp" target="_blank" data-smartkarma-citation="entities:15002:1" rel="noopener">Kakao Corp (035720 KS)</a>, <a href="https://www.smartkarma.com/entities/kakao-pay-corp" target="_blank" data-smartkarma-citation="entities:29675:1" rel="noopener">Kakao Pay (377300 KS)</a>, <a href="https://www.smartkarma.com/entities/ooredoo-q-s-c" target="_blank" data-smartkarma-citation="entities:24199:1" rel="noopener">Ooredoo Q.S.C (ORDS QD)</a>, <a href="https://www.smartkarma.com/entities/ck-hutchison-holdings-ltd" target="_blank" data-smartkarma-citation="entities:132:1" rel="noopener">CK Hutchison Holdings (1 HK)</a></p>

This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity indices. Companies mentioned this week:Tencent (700 HK), Alibaba Group (9988 HK), Huawei Technology (40978Z CH), ByteDance (1439927D CH), Baidu (9888 HK), Ant Financial Services Group (6688 HK), TSMC (2330 TT), Kakao Corp (035720 KS), Kakao Pay (377300 KS), Ooredoo Q.S.C (ORDS QD), CK Hutchison Holdings (1 HK)

Global Emerging Markets Weekly: 17 September 2021

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Event-Driven

<div class="content-highlight">
<p>On 17 September, it was reported that <a href="https://www.marketwatch.com/story/softbank-group-s-vision-fund-sells-1-69-billion-of-coupang-shares-271631856820" target="_blank" rel="noopener">SoftBank Group Corp's Vision Fund</a> sold $1.69 billion worth of <a href="https://www.smartkarma.com/entities/coupang-inc" target="_blank" data-smartkarma-citation="entities:28425:1" rel="noopener">Coupang (CPNG US)</a> shares (57 million shares at $29.685 each).</p>
<p>Now that SoftBank's sale of $1.69 billion in Coupang has become public, there will be greater media spotlight on how much additional shares of Coupang that SoftBank will likely sell. This will put further pressure on Coupang shares in the weeks ahead.</p>
<p>All in all, we believe that SoftBank is likely to sell MORE shares of Coupang in the coming weeks and this is likely to further negatively impact Coupang's share price. </p>
</div>


On 17 September, it was reported that SoftBank Group Corp's Vision Fund sold $1.69 billion worth of Coupang (CPNG US) shares (57 million shares at $29.685 each).
Now that SoftBank's sale of $1.69 billion in Coupang has become public, there will be greater media spotlight on how much additional shares of Coupang that SoftBank will likely sell. This will put further pressure on Coupang shares in the weeks ahead.
All in all, we believe that SoftBank is likely to sell MORE shares of Coupang in the coming weeks and this is likely to further negatively impact Coupang's share price. 


Softbank Sells $1.69 Billion Worth of Coupang Post Lockup Expiration - Overhang Concerns Continue

<p>It was mentioned in numerous local media today that Kakao Pay will delay its<a href="https://finance.naver.com/news/news_read.nhn?article_id=0003962660&amp;office_id=011&amp;mode=LSS2D&amp;type=0&amp;section_id=101&amp;section_id2=258&amp;section_id3=&amp;date=20210914&amp;page=1" target="_blank" rel="noopener"> IPO</a> once again to sometime in November/December 2021. Kakao Pay was planning to complete its IPO on 14 October. It is expected that Kakao Pay will revise its IPO prospectus. The current IPO price range is 60,000 won to 90,000 won per share, which suggested IPO offering range of $879 million to $1,319 million. In our view, the company is likely to lower the IPO price even further by about 10-20% in order to attract more investors. </p><div class="content-highlight">
<p><strong>Kakao Group announces a plan to support SMEs and self-employed </strong>- In order to soothe the regulators, <a href="http://www.koreaherald.com/view.php?ud=20210914000805" target="_blank" rel="noopener">Kakao Group</a> announced its plan to spend 300 billion won over five years to support SMEs and the self-employed. Kakao Group also plans to turn K-Cube Holdings into a social enterprise.</p>
<p>Overall, Kakao Group has provided a quick response to the Korean government's efforts to crack down on the Kakao Group. The key points include to change K-Cube Holdings into a social enterprise as well as the formation of a 300 billion won fund to help the SMEs and self-employed. Despite these efforts, it remains to be seen if these measures will be sufficient to appease the Korean regulators. In other words, there could be more negative regulatory related issues related to the Kakao Group in the months ahead.</p>
</div>

It was mentioned in numerous local media today that Kakao Pay will delay its IPO once again to sometime in November/December 2021. Kakao Pay was planning to complete its IPO on 14 October. It is expected that Kakao Pay will revise its IPO prospectus. The current IPO price range is 60,000 won to 90,000 won per share, which suggested IPO offering range of $879 million to $1,319 million. In our view, the company is likely to lower the IPO price even further by about 10-20% in order to attract more investors. 
Kakao Group announces a plan to support SMEs and self-employed - In order to soothe the regulators, Kakao Group announced its plan to spend 300 billion won over five years to support SMEs and the self-employed. Kakao Group also plans to turn K-Cube Holdings into a social enterprise.
Overall, Kakao Group has provided a quick response to the Korean government's efforts to crack down on the Kakao Group. The key points include to change K-Cube Holdings into a social enterprise as well as the formation of a 300 billion won fund to help the SMEs and self-employed. Despite these efforts, it remains to be seen if these measures will be sufficient to appease the Korean regulators. In other words, there could be more negative regulatory related issues related to the Kakao Group in the months ahead.


<p>There is a lot of confusion about exactly in which areas Kakao is under investigation by the Fair Trade Commission.</p><div class="content-highlight"><p><strong>The Fair Trade Commission is investigating K Cube Holdings from two angles.</strong></p></div><hr><h2>First: Non-disclosure of data on affiliates</h2><p>The FTC requires every business group whose total assets exceed ₩10T to submit data on all affiliates to designate a cross-ownership restricted business group every year. In particular, the FTC requires detailed shareholder status data for companies (wholly or partially) owned by the family members of the head of a business group.</p><p>This purpose is clear. This is intended to regulate the exploitation of private interests by an owner family. That is, the FTC intends to prevent an unfair transfer of wealth.</p><div class="content-highlight">
<p><strong>However, the Fair Trade Commission argues that detailed data on K Cube Holdings, the de facto holding company of Kakao, have not been submitted for a long time.</strong></p>
<p><strong>The FTC is planning to intensively investigate whether K Cube Holdings has received profits from Kakao in an unfair way.</strong></p>
</div><p>K Cube Holdings was established in January 2007 for the purpose of software development, and Kim Beom-soo (Kakao founder and chairman) owns 100% of the shares. K Cube Holdings currently owns a 10.59% stake in Kakao.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Kakao shareholding"}'>Kakao shareholding</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Kim Beom-su"}'>Kim Beom-soo</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.1329}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>13.29%</td>
</tr>
<tr><td colspan="2"></td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"K Cube Holdings"}'><strong>K Cube Holdings</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.1057}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'><strong>10.57%</strong></td>
</tr>
<tr><td colspan="2"><strong> </strong></td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"NPS"}'>NPS</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.084}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>8.40%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"MAXIMO PTE (Tencent)"}'>MAXIMO PTE (Tencent)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.0629}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>6.29%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"BlackRock"}'>BlackRock</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.051652177348374975}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>5.17%</td>
</tr>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Source: KRX FIND"}'>Source: KRX FIND</td></tr>
</tbody>
</table><p>Most of K Cube Holdings' seven employees (as of April of this year) are the family members of Chairman Kim. Chairman Kim's younger brother, Kim Hwa-young, served as the CEO until the end of last year. Chairman Kim and his wife (Hyoung Mi-sun) are part-time directors. Chairman Kim's son Kim Sang-bin and his daughter Kim Ye-bin also serve at the company.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/229/621/original/1.jpeg?1631585050" class="editor-image img-responsive" data-smartkarma-image-id="229621"></figure><h2>Second: Violation of the Separation of Industrial &amp; Financial Capital</h2>
<p>The second is actually more fatal. The FTC is also investigating allegations that Kakao violated the 'Regulation on Separation of Industrial and Financial Capital'.</p>
<div class="content-highlight"><p><strong>K Cube Holdings changed its business registration type this year from management consulting to financial investment. As a result, K Cube Holdings, a financial company, came to govern the non-financial company, Kakao.</strong></p></div>
<p>The Fair Trade Act stipulates that financial companies belonging to a cross-ownership restricted business group cannot exercise their voting rights over non-financial companies in accordance with the principle of Separation of Industrial and Financial Capital.</p>
<p><strong>Violation of the Separation of Industrial and Financial Capital is way more serious than an unfair transfer of wealth and is subject to severe penalties.</strong></p></section>

There is a lot of confusion about exactly in which areas Kakao is under investigation by the Fair Trade Commission.The Fair Trade Commission is investigating K Cube Holdings from two angles.First: Non-disclosure of data on affiliatesThe FTC requires every business group whose total assets exceed ₩10T to submit data on all affiliates to designate a cross-ownership restricted business group every year. In particular, the FTC requires detailed shareholder status data for companies (wholly or partially) owned by the family members of the head of a business group.This purpose is clear. This is intended to regulate the exploitation of private interests by an owner family. That is, the FTC intends to prevent an unfair transfer of wealth.
However, the Fair Trade Commission argues that detailed data on K Cube Holdings, the de facto holding company of Kakao, have not been submitted for a long time.
The FTC is planning to intensively investigate whether K Cube Holdings has received profits from Kakao in an unfair way.
K Cube Holdings was established in January 2007 for the purpose of software development, and Kim Beom-soo (Kakao founder and chairman) owns 100% of the shares. K Cube Holdings currently owns a 10.59% stake in Kakao.





Kakao shareholding

Kim Beom-soo
13.29%



K Cube Holdings
10.57%

 

NPS
8.40%


MAXIMO PTE (Tencent)
6.29%


BlackRock
5.17%

Source: KRX FIND

Most of K Cube Holdings' seven employees (as of April of this year) are the family members of Chairman Kim. Chairman Kim's younger brother, Kim Hwa-young, served as the CEO until the end of last year. Chairman Kim and his wife (Hyoung Mi-sun) are part-time directors. Chairman Kim's son Kim Sang-bin and his daughter Kim Ye-bin also serve at the company.Second: Violation of the Separation of Industrial &amp; Financial Capital
The second is actually more fatal. The FTC is also investigating allegations that Kakao violated the 'Regulation on Separation of Industrial and Financial Capital'.
K Cube Holdings changed its business registration type this year from management consulting to financial investment. As a result, K Cube Holdings, a financial company, came to govern the non-financial company, Kakao.
The Fair Trade Act stipulates that financial companies belonging to a cross-ownership restricted business group cannot exercise their voting rights over non-financial companies in accordance with the principle of Separation of Industrial and Financial Capital.
Violation of the Separation of Industrial and Financial Capital is way more serious than an unfair transfer of wealth and is subject to severe penalties.

Kakao's De Facto Holding Company K Cube Holdings: Exactly What Are They Accused Of?

South Korea

Kakao Corp. provides Internet portal services such as news, free e-mail, and leisure information.  The Company also offers cross-platform mobile messaging application that allows users to exchange messages.

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Kakao Corp (035720 KS)

Kakao Pay IPO Schedule Update & Short Trading Idea on Kakao Bank

This post gives an update on Kakao Pay's listing situation, including the likely schedule. Then, it discusses short trading ideas involving Kakao...

Sanghyun Park

Global Emerging Markets Weekly: 17 September 2021

This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity...

Wium Malan, CFA

Softbank Sells $1.69 Billion Worth of Coupang Post Lockup Expiration - Overhang Concerns Continue

Now that SoftBank's sale of $1.69 billion in Coupang is public, there will likely be further negative pressure on Coupang's shares as investors...

Douglas Kim

Kakao Pay IPO Will Be Delayed Again

It was mentioned in numerous local media today that Kakao Pay will delay its IPO once again to sometime in November/December 2021. The IPO price...

Douglas Kim

Kakao's De Facto Holding Company K Cube Holdings: Exactly What Are They Accused Of?

This post discusses exactly what K Cube Holdings and chairman Kim are accused of by the FTC and why this issue is so critical that Kakao's share...

Sanghyun Park

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52-week Range

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