Korea / Special Sits, Pairs, Index Rebalancing, Clepsydra Capital

Sanghyun Park

Korea / Special Sits, Pairs, Index Rebalancing

Clepsydra Capital

Investigate special situations, pairs, and index rebalancing trades in Korea.

Event-Driven

<ul>
<li>Lotte Chemical offers 8.5M new shares, which is ₩1.1T based on the provisional price of ₩130,000. This is a capital increase rate of 24.8%.</li>
<li>This event has already been leaked in advance from early last week, so it isn't easy to expect a significant return from the short-selling approach immediately after the announcement.</li>
<li>Instead, we should pay attention to the KOSPI 200 passive inflow that occurs the day before the ex-date. It is estimated to be approximately 0.8x ADTV.</li>
</ul>


Lotte Chemical offers 8.5M new shares, which is ₩1.1T based on the provisional price of ₩130,000. This is a capital increase rate of 24.8%.
This event has already been leaked in advance from early last week, so it isn't easy to expect a significant return from the short-selling approach immediately after the announcement.
Instead, we should pay attention to the KOSPI 200 passive inflow that occurs the day before the ex-date. It is estimated to be approximately 0.8x ADTV.


Lotte Chemical Offering Terms & Trading Angle Targeting K200 Inflow on Ex-Date

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

<ul>
<li>In this insight, we highlight the pricing gap divergence of the major Korean holdcos and opcos amid market carnage.</li>
<li>In general, more holdcos/quasi-holdcos have been outperforming the opcos in the past year, as compared to the previous years as more investors seek value-oriented, deep NAV discount stocks.</li>
<li>We highlight 26 pair trades that involve Korean holdcos and opcos.</li>
</ul>


In this insight, we highlight the pricing gap divergence of the major Korean holdcos and opcos amid market carnage.
In general, more holdcos/quasi-holdcos have been outperforming the opcos in the past year, as compared to the previous years as more investors seek value-oriented, deep NAV discount stocks.
We highlight 26 pair trades that involve Korean holdcos and opcos.


Korean Holdcos Vs Opcos Gap Spreads Opportunities Amid Market Carnage

<ul>
<li>The KAL event is almost over. But we still have Asiana Airlines. The KDB's Asiana CB conversion should also be considered a foregone conclusion.</li>
<li>Applying the case of KAL, the KDB will likely file conversion when 30 days have elapsed since receiving the repayment notice. For this, the prevailing local consensus is June 10.</li>
<li>Conversion filing on July 8 and listing on July 29 with the 15-day delay rule applied is a likely scenario. Hence, our entry point should be from July 4.</li>
</ul>


The KAL event is almost over. But we still have Asiana Airlines. The KDB's Asiana CB conversion should also be considered a foregone conclusion.
Applying the case of KAL, the KDB will likely file conversion when 30 days have elapsed since receiving the repayment notice. For this, the prevailing local consensus is June 10.
Conversion filing on July 8 and listing on July 29 with the 15-day delay rule applied is a likely scenario. Hence, our entry point should be from July 4.


HMM-Like Dilution Event: Korean Air Is Nearly Done, But Asiana Airlines Gearing Up

<ul>
<li>Korean Air might have already notified the creditors of its early repayment decision. Asiana will likely follow suit, immediately triggering the creditors to exercise the conversion rights.</li>
<li>So, both Korean Air and Asiana's conversion should be a foregone conclusion. There is only uncertainty about how many conversions we will actually see for Asiana from the KDB.</li>
<li>Instead of preemptive position setup at this point, I would consider starting the position build-up within the 2-3 day window from the repayment filing to CB conversion.</li>
</ul>


Korean Air might have already notified the creditors of its early repayment decision. Asiana will likely follow suit, immediately triggering the creditors to exercise the conversion rights.
So, both Korean Air and Asiana's conversion should be a foregone conclusion. There is only uncertainty about how many conversions we will actually see for Asiana from the KDB.
Instead of preemptive position setup at this point, I would consider starting the position build-up within the 2-3 day window from the repayment filing to CB conversion.


Korean Air & Asiana Airlines: Current Status of CB Conversion Event

<ul>
<li>Korean Air will request the KDB and the KEXIM for early repayment before the step-up kicks in. Then, the creditors  decide conversion using Korean Air's claim as an excuse.</li>
<li>This is exactly the same as the case of HMM, whose stock price began to face corrections 7-10 trading days before the conversion announcement and peaked on the announcement date.</li>
<li>So, aiming at the possibility of a conversion announcement coming out in the third week of May, I recommend gradually building up short positions starting next week.</li>
</ul>


Korean Air will request the KDB and the KEXIM for early repayment before the step-up kicks in. Then, the creditors  decide conversion using Korean Air's claim as an excuse.
This is exactly the same as the case of HMM, whose stock price began to face corrections 7-10 trading days before the conversion announcement and peaked on the announcement date.
So, aiming at the possibility of a conversion announcement coming out in the third week of May, I recommend gradually building up short positions starting next week.


Korean Air Will Likely Face an HMM-Like CB Conversion Overhang Risk

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.

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Korean Air Lines (003490 KS)

Lotte Chemical Offering Terms & Trading Angle Targeting K200 Inflow on Ex-Date

This post details Lotte Chemical's paid-in capital increase and discusses the trading angle targeting the KOSPI 200 passive inflow that occurs...

Sanghyun Park

Korean Holdcos Vs Opcos Gap Spreads Opportunities Amid Market Carnage

In this insight, we highlight the pricing gap divergence of the major Korean holdcos and opcos amid market carnage. We highlight 26 pair trades...

Douglas Kim

HMM-Like Dilution Event: Korean Air Is Nearly Done, But Asiana Airlines Gearing Up

This post discusses a likely schedule of Asiana Airlines' CB conversion event, which allows us to capture a trading entry point for an HMM-like...

Sanghyun Park

Korean Air & Asiana Airlines: Current Status of CB Conversion Event

This post investigates the current status of Korean Air and Asiana Airlines' CB conversion event by the creditors: the KDB and the Korea EXIM.

Sanghyun Park

Korean Air Will Likely Face an HMM-Like CB Conversion Overhang Risk

This post investigates Korean Air's CB conversion overhang risk, which opens up shorting opportunities in the short term.

Sanghyun Park

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