Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

<p>It has been reported in the past few days that <a href="https://finance.naver.com/item/news_read.nhn?article_id=0000715983&amp;office_id=366&amp;code=180640&amp;sm=title_entity_id.basic" target="_blank" rel="noopener">Cho Hyun-Ah</a> sold 12 billion won worth ($1.1 million) of <a href="https://www.smartkarma.com/entities/hanjin-kal-corp" target="_blank" data-smartkarma-citation="entities:19086:1" rel="noopener">Hanjin KAL Corp (180640 KS)</a> shares in 2021. It appears that one of the reasons why she may have sold these shares was to pay for the inheritance tax of the late Hanjin Group Chairman Cho Yang-Ho. Cho Hyun-Ah needs to pay a total of nearly 60 billion won in inheritance taxes, broken down into 12 billion won payment per year.</p><p>Although Korean Air has been infused with new, fresh capital, it is not all certain whether the company will best use the resources in the best ways possible. In other words, she may be waiting for her brother to make another mistake in managing the company. If one or two years later if enough shareholders decide that Cho Won-Tae and his assigned managers are not acting in the best interest of the shareholders, then his sister Cho Hyun-Ah may be waiting for an another shareholders battle against his brother. </p><p>All in all, from a pair-trade perspective, the short term momentum is on the side of long Hanjin Kal and short Korean Air, which has worked so far since the end of the ban on many Korean stocks starting May 3. Given the huge price disparity between these two stocks in the past year, we think that this could be a nice trade as many investors look to close the gap on the two prices which have diverged greatly in the past year.</p>

It has been reported in the past few days that Cho Hyun-Ah sold 12 billion won worth ($1.1 million) of Hanjin KAL Corp (180640 KS) shares in 2021. It appears that one of the reasons why she may have sold these shares was to pay for the inheritance tax of the late Hanjin Group Chairman Cho Yang-Ho. Cho Hyun-Ah needs to pay a total of nearly 60 billion won in inheritance taxes, broken down into 12 billion won payment per year.Although Korean Air has been infused with new, fresh capital, it is not all certain whether the company will best use the resources in the best ways possible. In other words, she may be waiting for her brother to make another mistake in managing the company. If one or two years later if enough shareholders decide that Cho Won-Tae and his assigned managers are not acting in the best interest of the shareholders, then his sister Cho Hyun-Ah may be waiting for an another shareholders battle against his brother. All in all, from a pair-trade perspective, the short term momentum is on the side of long Hanjin Kal and short Korean Air, which has worked so far since the end of the ban on many Korean stocks starting May 3. Given the huge price disparity between these two stocks in the past year, we think that this could be a nice trade as many investors look to close the gap on the two prices which have diverged greatly in the past year.

Hanjin Kal: Why Is Cho Hyun-Ah Selling A Partial Stake?

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<div>
<p>This week in StubWorld ...</p>
</div>
<div>
<div>
<div class="content-highlight">
<p>With the short-selling ban in Korea lifted this past Monday, this insight takes a cursory look at those Holdcos moving, and some that may yet have more to move. </p>
</div>
</div>
</div>
<div>
<p>Preceding my comments on Korean stubs are the weekly setup/unwind tables for Asia-Pacific Holdcos.</p>
</div>
<div><hr></div>
<div>
<p>These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.</p>
</div>


This week in StubWorld ...




With the short-selling ban in Korea lifted this past Monday, this insight takes a cursory look at those Holdcos moving, and some that may yet have more to move. 




Preceding my comments on Korean stubs are the weekly setup/unwind tables for Asia-Pacific Holdcos.



These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.


<div class="content-highlight"><p>In this insight, we highlight the closing of the pricing gaps between the major Korean holdcos and opcos, especially with the upcoming end of the ban on the short selling of shares in Korea in May. In this insight, we highlight 26 pair trades that involve Korean holdcos and opcos.</p></div><p>Just a reminder that the ban on short selling of KOSPI 200 and KOSDAQ 150 included stocks will remain in place until May 2nd and investors will be able to resume their shorting on these 350 stocks starting on May 3rd. Once this ban on short selling of stocks ends, there could be more investors that may look to add to the holdco shares and short the opco shares (especially among the pairs where the holdco shares have underperformed the opco shares in the past year). However, some of these moves have already started to take place in the past few weeks, which could reduce the overall profits on the pair trades. </p><p>Traditionally, the pair trades involving Korean holdcos and opcos have been a trading strategy that many hedge funds have employed for many years. However, the ban on short selling of stocks in Korea have prevented many of these funds from employing these pair trade strategies. Once the ban ends, you will likely see these funds becoming more active in these trading methods once again. </p><div class="content-highlight">
<p>In the section below, we separated the pair trades into two different sections. The first table involves major opcos outperforming holdcos (regular and quasi) in the past year. Of the 26 pair trade strategies mentioned in this insight, this section I involves 19 of them (73% of total). The section II (which involve holdcos outperforming the opcos in the past year) involves 7 pair trade strategies (27% of total).</p>
<p>In other words, the opcos in general have vastly outperformed the holdcos in the past year, especially due to the ban on the short selling of stocks in Korea. Because the opcos tend to be the bigger company than the holdcos in terms of market cap, many fund managers (both active and passive) have tended to just invest in the opcos and pay less attention to the holdcos.  </p>
</div><p>Also, we described the holdcos as either regular or quasi. SK Telecom and Samsung C&amp;T would be examples of "quasi" holdcos whereas Orion Holdings and Hanjin Kal would be examples of regular holdcos. </p>

In this insight, we highlight the closing of the pricing gaps between the major Korean holdcos and opcos, especially with the upcoming end of the ban on the short selling of shares in Korea in May. In this insight, we highlight 26 pair trades that involve Korean holdcos and opcos.Just a reminder that the ban on short selling of KOSPI 200 and KOSDAQ 150 included stocks will remain in place until May 2nd and investors will be able to resume their shorting on these 350 stocks starting on May 3rd. Once this ban on short selling of stocks ends, there could be more investors that may look to add to the holdco shares and short the opco shares (especially among the pairs where the holdco shares have underperformed the opco shares in the past year). However, some of these moves have already started to take place in the past few weeks, which could reduce the overall profits on the pair trades. Traditionally, the pair trades involving Korean holdcos and opcos have been a trading strategy that many hedge funds have employed for many years. However, the ban on short selling of stocks in Korea have prevented many of these funds from employing these pair trade strategies. Once the ban ends, you will likely see these funds becoming more active in these trading methods once again. 
In the section below, we separated the pair trades into two different sections. The first table involves major opcos outperforming holdcos (regular and quasi) in the past year. Of the 26 pair trade strategies mentioned in this insight, this section I involves 19 of them (73% of total). The section II (which involve holdcos outperforming the opcos in the past year) involves 7 pair trade strategies (27% of total).
In other words, the opcos in general have vastly outperformed the holdcos in the past year, especially due to the ban on the short selling of stocks in Korea. Because the opcos tend to be the bigger company than the holdcos in terms of market cap, many fund managers (both active and passive) have tended to just invest in the opcos and pay less attention to the holdcos.  
Also, we described the holdcos as either regular or quasi. SK Telecom and Samsung C&amp;T would be examples of "quasi" holdcos whereas Orion Holdings and Hanjin Kal would be examples of regular holdcos. 

Closing the Gap: Korean Holdcos Vs. Opcos

<p>It has been more than a year that it has been discussed in the Korean media about a potential visit of Xi Jinping to South Korea. Due to concerns about COVID-19 and other political factors, Xi Jinping's visit to South Korea has continued to get delayed. Xi Jinping's visit to South Korea is very important since it signifies that there could be much improved measures to increase trade and business opportunities between the two countries. His visit could also lead to the Chinese government opening up measures to allow greater travel measures for the people in China to visit South Korea. </p><p><strong>When will Xi Jinping Visit South Korea? </strong>Although the exact time period of when Xi Jinping could visit South Korea is uncertain, late August/early September could be a probable time when he could visit South Korea. This would be about four months from now which would provide more time for the South Korean government to reduce the daily new cases of COVID-19. It is also probably likely that some investors are already buying shares of these stocks ahead of the actual official announcement of a potential visit of South Korea by Xi Jinping.</p>

It has been more than a year that it has been discussed in the Korean media about a potential visit of Xi Jinping to South Korea. Due to concerns about COVID-19 and other political factors, Xi Jinping's visit to South Korea has continued to get delayed. Xi Jinping's visit to South Korea is very important since it signifies that there could be much improved measures to increase trade and business opportunities between the two countries. His visit could also lead to the Chinese government opening up measures to allow greater travel measures for the people in China to visit South Korea. When will Xi Jinping Visit South Korea? Although the exact time period of when Xi Jinping could visit South Korea is uncertain, late August/early September could be a probable time when he could visit South Korea. This would be about four months from now which would provide more time for the South Korean government to reduce the daily new cases of COVID-19. It is also probably likely that some investors are already buying shares of these stocks ahead of the actual official announcement of a potential visit of South Korea by Xi Jinping.

Xi Jinping's Visit to South Korea: A Trading Strategy for Korean Cosmetics & Consumer Stocks

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>The three-party opposition, the KCGI (activist fund), Bando Group, and Cho Hyun-ah (the eldest sibling of the Hanjin owner family), ended their joint ownership of their stakes in Hanjin Kal.</p><p>The regulatory filings by all of the three parties were posted on DART last Thursday.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/198/817/original/Screen+Shot+2021-04-04+at+10.44.14+AM.png?1617547476" class="editor-image img-responsive" data-smartkarma-image-id="198817"></figure></section><div class="content-caption">(Source: DART)</div><p>They signed the joint ownership agreement a year ago, and they appear to have agreed not to renew it.</p><p>Of course, it is no surprise. Ever since KDB came into the scene, the proxy fight must have been pretty much over. With the help of KDB, the Cho WT side now controls 47.41%, whereas the opposition remains at 40.40%.</p><p>The casting votes amount to 12.19%, but local retail has only about 4%. The other 8% are held by local institutions, many of which are pro-Cho WT.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td style="width: 238.182px;" data-sheets-value='{"1":2,"2":"Hanjin Kal proxy fight"}'>Hanjin Kal proxy fight</td>
<td style="text-align: right; width: 146.364px;" data-sheets-value='{"1":2,"2":"Cho WT"}'>Cho WT</td>
<td style="text-align: right; width: 142.727px;" data-sheets-value='{"1":2,"2":"Opposition"}'>Opposition</td>
<td style="text-align: right; width: 133.636px;" data-sheets-value='{"1":2,"2":"Casting votes"}'>Casting votes</td>
</tr>
<tr>
<td style="width: 238.182px;" data-sheets-value='{"1":2,"2":"KDB"}'><strong>KDB</strong></td>
<td style="text-align: right; width: 146.364px;" data-sheets-value='{"1":3,"3":0.1066}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'><strong>10.66%</strong></td>
<td style="text-align: right; width: 142.727px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right; width: 133.636px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td style="width: 238.182px;" data-sheets-value='{"1":2,"2":"Cho WT"}'>Cho WT</td>
<td style="text-align: right; width: 146.364px;" data-sheets-value='{"1":3,"3":0.0582}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>5.82%</td>
<td style="text-align: right; width: 142.727px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right; width: 133.636px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td style="width: 238.182px;" data-sheets-value='{"1":2,"2":"Jeongseok Inha AF (controlled by Cho WT)"}'> - Jeongseok Inha AF (controlled by Cho WT)</td>
<td style="text-align: right; width: 146.364px;" data-sheets-value='{"1":3,"3":0.0191}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>1.91%</td>
<td style="text-align: right; width: 142.727px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right; width: 133.636px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td style="width: 238.182px;" data-sheets-value='{"1":2,"2":"Jeongseok LAF (controlled by Cho WT)"}'> - Jeongseok LAF (controlled by Cho WT)</td>
<td style="text-align: right; width: 146.364px;" data-sheets-value='{"1":3,"3":0.0096}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>0.96%</td>
<td style="text-align: right; width: 142.727px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right; width: 133.636px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td style="width: 238.182px;" data-sheets-value='{"1":2,"2":"Cho Hyun-min"}'>Cho Hyun-min</td>
<td style="text-align: right; width: 146.364px;" data-sheets-value='{"1":3,"3":0.0578}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>5.78%</td>
<td style="text-align: right; width: 142.727px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right; width: 133.636px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td style="width: 238.182px;" data-sheets-value='{"1":2,"2":"Lee Myung-hee"}'>Lee Myung-hee</td>
<td style="text-align: right; width: 146.364px;" data-sheets-value='{"1":3,"3":0.0474}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>4.74%</td>
<td style="text-align: right; width: 142.727px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right; width: 133.636px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td style="width: 238.182px;" data-sheets-value='{"1":2,"2":"Other special affiliated persons"}'>Other special affiliated persons</td>
<td style="text-align: right; width: 146.364px;" data-sheets-value='{"1":3,"3":0.0084}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>0.84%</td>
<td style="text-align: right; width: 142.727px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right; width: 133.636px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td style="width: 238.182px;" data-sheets-value='{"1":2,"2":"Delta Air Lines, Inc."}'>Delta Air Lines, Inc.</td>
<td style="text-align: right; width: 146.364px;" data-sheets-value='{"1":3,"3":0.1331}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>13.31%</td>
<td style="text-align: right; width: 142.727px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right; width: 133.636px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td style="width: 238.182px;" data-sheets-value='{"1":2,"2":"Korean Air ESOP (incl. self-ins. &amp; CFA)"}'>Korean Air ESOP (incl. self-ins. &amp; CFA)</td>
<td style="text-align: right; width: 146.364px;" data-sheets-value='{"1":3,"3":0.0339}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>3.39%</td>
<td style="text-align: right; width: 142.727px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right; width: 133.636px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td style="width: 238.182px;" data-sheets-value='{"1":2,"2":"KCGI"}'>The KCGI (activist fund)</td>
<td style="text-align: right; width: 146.364px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right; width: 142.727px;" data-sheets-value='{"1":3,"3":0.1754}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>17.54%</td>
<td style="text-align: right; width: 133.636px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td style="width: 238.182px;" data-sheets-value='{"1":2,"2":"Bando"}'>Bando</td>
<td style="text-align: right; width: 146.364px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right; width: 142.727px;" data-sheets-value='{"1":3,"3":0.1715}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>17.15%</td>
<td style="text-align: right; width: 133.636px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td style="width: 238.182px;" data-sheets-value='{"1":2,"2":"Cho Hyun-a"}'>Cho Hyun-a</td>
<td style="text-align: right; width: 146.364px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right; width: 142.727px;" data-sheets-value='{"1":3,"3":0.0571}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>5.71%</td>
<td style="text-align: right; width: 133.636px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td style="width: 238.182px;" data-sheets-value='{"1":2,"2":"Other"}'>Other</td>
<td style="text-align: right; width: 146.364px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right; width: 142.727px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right; width: 133.636px;" data-sheets-value='{"1":3,"3":0.1219}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>12.19%</td>
</tr>
<tr>
<td style="width: 238.182px;" data-sheets-value='{"1":2,"2":"- Total"}'><strong>- Total</strong></td>
<td style="text-align: right; width: 146.364px;" data-sheets-value='{"1":3,"3":0.4741}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=sum(R[-13]C[0]:R[-5]C[0])"><strong>47.41%</strong></td>
<td style="text-align: right; width: 142.727px;" data-sheets-value='{"1":3,"3":0.40399999999999997}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=sum(R[-4]C[0]:R[-2]C[0])"><strong>40.40%</strong></td>
<td style="text-align: right; width: 133.636px;" data-sheets-value='{"1":3,"3":0.12190000000000006}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=1-R[0]C[-2]-R[0]C[-1]"><strong>12.19%</strong></td>
</tr>
<tr><td colspan="4" rowspan="1" style="width: 723.636px;" data-sheets-value='{"1":2,"2":"Source: DART &amp; FnGuide"}'>Source: DART &amp; FnGuide</td></tr>
</tbody>
</table>

The three-party opposition, the KCGI (activist fund), Bando Group, and Cho Hyun-ah (the eldest sibling of the Hanjin owner family), ended their joint ownership of their stakes in Hanjin Kal.The regulatory filings by all of the three parties were posted on DART last Thursday.(Source: DART)They signed the joint ownership agreement a year ago, and they appear to have agreed not to renew it.Of course, it is no surprise. Ever since KDB came into the scene, the proxy fight must have been pretty much over. With the help of KDB, the Cho WT side now controls 47.41%, whereas the opposition remains at 40.40%.The casting votes amount to 12.19%, but local retail has only about 4%. The other 8% are held by local institutions, many of which are pro-Cho WT.








Hanjin Kal proxy fight
Cho WT
Opposition
Casting votes


KDB
10.66%
-
-


Cho WT
5.82%
-
-


 - Jeongseok Inha AF (controlled by Cho WT)
1.91%
-
-


 - Jeongseok LAF (controlled by Cho WT)
0.96%
-
-


Cho Hyun-min
5.78%
-
-


Lee Myung-hee
4.74%
-
-


Other special affiliated persons
0.84%
-
-


Delta Air Lines, Inc.
13.31%
-
-


Korean Air ESOP (incl. self-ins. &amp; CFA)
3.39%
-
-


The KCGI (activist fund)
-
17.54%
-


Bando
-
17.15%
-


Cho Hyun-a
-
5.71%
-


Other
-
-
12.19%


- Total
47.41%
40.40%
12.19%

Source: DART &amp; FnGuide



Hanjin Kal Shorting Opportunity: Opposition Disbands, Loan Balance, & NAV Discount

South Korea

Korean Air Lines Co., Ltd. operates air transportation services.  The Company's services include passenger and cargo transportation, aircraft maintenance, and air catering.  Korean Air Lines provides domestic and international airline services.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
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Korean Air Lines (003490 KS)

Hanjin Kal: Why Is Cho Hyun-Ah Selling A Partial Stake?

From a pair-trade perspective, the short term momentum is on the side of long Hanjin Kal and short Korean Air, which has worked so far since the...

Douglas Kim

StubWorld: Shorting Korean Stubs

With the short-selling ban in Korea lifted this past Monday, this insight takes a cursory look at those Holdcos moving, and some that may yet have...

David Blennerhassett

Closing the Gap: Korean Holdcos Vs. Opcos

In this insight, we highlight the closing of the pricing gaps between the major Korean holdcos and opcos, especially with the upcoming end of the...

Douglas Kim

Xi Jinping's Visit to South Korea: A Trading Strategy for Korean Cosmetics & Consumer Stocks

In this insight, we discuss the increasing probability of Xi Jinping visiting South Korea in August/September. This could be a key catalyst for...

Douglas Kim

Hanjin Kal Shorting Opportunity: Opposition Disbands, Loan Balance, & NAV Discount

This post examines the shorting opportunity on Hanjin Kal as the opposition side disbands. It also looks into the current loan balance and NAV...

Sanghyun Park

Price Gauge

52-week Range

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