South Korea

This post dives into the official details of the Korea Value-Up Index methodology that I obtained from KRX. Plus, it has the official weights and free-float rates for each constituent.
The 3rd and 4th Phases led to surprising stocks entering the index, causing drops for KB and Hana, while SK Hynix benefited from the Exception Application rule.
The index’s straightforward methodology suggests low rebalancing uncertainty, but flexible Special Entry rules and upcoming December changes may add unpredictability, targeting bank stocks like KB, Hana, and JB.

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Oct 07

Daily Brief South Korea: Hyundai Motor, Korea Zinc and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

WisdomTree Emerging Markets High Dividend Index Rebalance: US$2.5bn Round-Trip Trade
Korea Zinc: Breaking Down the Cancel Risk with Specific Legal Provisions for Both Camps

WisdomTree Emerging Markets High Dividend Index Rebalance: US$2.5bn Round-Trip Trade

By Brian Freitas

The WisdomTree Emerging Markets High Dividend Index is a fundamentally weighted index that measures the performance of high dividend yield stocks within emerging markets.
The changes at the October rebalance were announced after market close on 4 October with implementation scheduled at the close on 16 October.
There are 241 adds and 208 deletes for the index with an estimated round-trip trade of US$2.5bn. There are many stocks with over 2x ADV to trade.

Korea Zinc: Breaking Down the Cancel Risk with Specific Legal Provisions for Both Camps

MBK is unlikely to lower the tender price or cancel the offer due to legal constraints and potential regulatory hurdles, along with compensating investors.
Just keep in mind that if you want to participate in MBK’s Korea Zinc offer, you’ll need to submit your bid to secure that compensation safety net.
We can’t rule out the second injunction request being accepted on the 21st, leaving Choi’s camp in a tough position with tender offer cancellation risks compared to MBK.

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Oct 06

Daily Brief South Korea: Korea Zinc and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Impact on Korea Zinc’s Balance Sheet and Debt Ratios Post Massive Debt Raise Proposed by Choi Family

Impact on Korea Zinc’s Balance Sheet and Debt Ratios Post Massive Debt Raise Proposed by Choi Family

We discuss the impact on the balance sheet and debt ratios of Korea Zinc’s efforts to conduct a massive debt increase to buyback and cancel shares.
Although the Choi family may consider raising further debt to increase the tender offer price even further, we believe this could pose further balance sheet risk on Korea Zinc.
We provide sensitivity analysis of higher debt on the interest coverage ratios of Korea Zinc.

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Oct 05

Daily Brief South Korea: Korea Zinc and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

MBK Raised Korea Zinc’s Tender Price to ₩830K and Dropped the Hard Floor, Keeping the Upper Hand
MBK Raises Tender Offer Price of Korea Zinc to 830,000 Won

MBK Raised Korea Zinc’s Tender Price to ₩830K and Dropped the Hard Floor, Keeping the Upper Hand

MBK ditched the hard floor, eliminating cancellation risk. With a 15% GGT rate, there’s a 4% spread, so if you can secure volume, the deal looks solid.
MBK’s tender offer has less volume than Choi’s buyback (18%), increasing proration risk, but Choi’s deal also faces legal headaches, leaving some cancellation risk.
Tax implications differ: MBK’s offer incurs capital gains tax, while Choi’s buyback is subject to dividend tax. Foreign investors may prefer MBK’s 0% withholding tax, impacting participation.

MBK Raises Tender Offer Price of Korea Zinc to 830,000 Won

On 4 October, MBK Partners announced that it is raising its tender offer price of Korea Zinc from 750,000 won to 830,000 won, matching Choi family’s tender offer price.
As the price and conditions have changed, the tender offer period for Korea Zinc by MBK Partners and Young Poong will be extended by 10 days until 14 October.
Unless the Choi family makes another counter offer, upping the tender offer price even further, MBK/Young Poong is in a better position to win this M&A war for Korea Zinc.

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Oct 04

Daily Brief South Korea: Korea Zinc, Young Poong Precision and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Korea Zinc (010130 KS)’s ₩830,000/Share Offer. Mmm …
Legal Chaos Amid Young Poong Filing a Criminal Complaint Against Korea Zinc’s BOD and What’s Next?
MBK Hikes Youngpoong Precision Tender Price to ₩30,000: Tender Deadline Extended to the 14th
MBK Raises Tender Offer Price of Young Poong Precision to 30,000 Won

Korea Zinc (010130 KS)’s ₩830,000/Share Offer. Mmm …

Never a dull moment for Korea Zinc (010130 KS) (KZ). After MBK/Young Poong’s injunction to block KZ’s buyback was denied, KZ, together with Bain Capital, tabled a punchy Offer.
KZ has launched a 3.21mn share buyback (15.5% of shares out) at ₩830,000/share. Bain will also buy 2.5%. KZ’s buyback is to be funded by short-term loans and corporate bonds.
MBK/Young Poong have filed another injunction against this buyback. Its case has merit. And that legal overhang ostensibly accounts for KZ trading ~14% below the buyback terms.

Legal Chaos Amid Young Poong Filing a Criminal Complaint Against Korea Zinc’s BOD and What’s Next?

Young Poong filed a criminal complaint against the board of directors of Korea Zinc (010130 KS) who voted in favor of the tender offer by buying back Korea Zinc’s shares.
If Korea Zinc proceeds with the share buyback at higher price than the tender offer price by MBK, there are two main scenarios.
Trading Action Point: If Uncertain, Watch the Price Action in the Next Several Days

MBK Hikes Youngpoong Precision Tender Price to ₩30,000: Tender Deadline Extended to the 14th

MBK is raising its tender offer for Young Poong Precision to ₩30,000 per share, matching Choi’s offer and extending the deadline to October 14. Filing expected tomorrow before market open.
MBK targets 6.84 million shares, surpassing Choi’s 3.94 million cap. No hard floor, no cancellation risk, but MBK holds an edge in proration.
The buzz is whether MBK will raise its Korea Zinc bid beyond 900,000 KRW, as Choi prepped with a 950,000 KRW offer. A bid hike and extension seem likely.

MBK Raises Tender Offer Price of Young Poong Precision to 30,000 Won

MBK Partners announced that it is raising its tender offer price for Young Poong Precision from 25,000 won to 30,000 won, matching Choi family’s tender offer price of 30,000 won.
Accordingly, MBK’s tender offer period for Young Poong Precision has been extended from 6 October to 14 October.
The revised up tender offer price of Young Poong Precision by MBK at 30,000 won is likely to result in boosting its stock price closer to the 30,000 won.

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Oct 03

Daily Brief South Korea: Korea Zinc, Hyosung Heavy Industries Corp and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Korea Zinc’s Buyback Tender Offer at ₩830,000: Market Vibe Still Leans Towards MBK
Court Dismisses Injunction; Korea Zinc to Announce Buyback Tender Offer Soon
Korea Zinc: Plans to Buy Back and Cancel Shares Worth 2.7 Trillion Won + Team Up with Bain Capital
KOSPI200 Index Rebalance Preview: 4 Adds, 5 Deletes Likely in December

Korea Zinc’s Buyback Tender Offer at ₩830,000: Market Vibe Still Leans Towards MBK

Korea Zinc is launching a 3.21M share buyback (15.5% of total shares) via a KRW 2.66T tender offer at ₩830,000 per share, with Bain Capital involved.
If tendered shares fall short, Korea Zinc and Bain Capital will buy all. If over the target, they’ll buy pro rata. Below 1,215,283 shares, they will opt out.
Should we dive into Korea Zinc’s risky buyback or choose safer, lower-priced MBK? The market vibe favors MBK, reflected in Korea Zinc’s closing price today.

Court Dismisses Injunction; Korea Zinc to Announce Buyback Tender Offer Soon

The court rejected MBK and Young Poong’s injunction to block Korea Zinc’s buyback, allowing Choi’s side to continue using buybacks to defend control.
Korea Zinc plans an emergency board meeting to launch a tender offer, using internal funds, to buy back shares at 800K-850K KRW starting around October 7.
If Choi converts discretionary reserves into distributable profits, Korea Zinc could unlock 2-3 trillion KRW for the buyback, but uncertainty keeps the stock around 700K KRW.

Korea Zinc: Plans to Buy Back and Cancel Shares Worth 2.7 Trillion Won + Team Up with Bain Capital

Korea Zinc plans to repurchase and cancel shares worth 2.663 trillion won. Korea Zinc’s partner Bain Capital also plans to purchase around 430 billion won for a 2.5% stake.
Korea Zinc plans to buy back shares at 830,000 won per share, which is 11% higher than MBK’s revised up tender offer price of 750,000 won.
Choi family/Bain Capital’s efforts to conduct a massive share buyback and cancellation at higher prices than the market price goes against the globally accepted market practices.

KOSPI200 Index Rebalance Preview: 4 Adds, 5 Deletes Likely in December

By Brian Freitas

85% of the way through the review period, there could be 4 adds and 5 deletes for the Korea Stock Exchange KOSPI 200 (KOSPI2 INDEX) in December.
The impact on the potential inclusions ranges from 1.4-17 days of ADV while the impact on the potential deletions varies from 4-8 days of ADV.
The potential adds outperformed the potential deletes early in the review period before giving up all the gains over the following months.

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Oct 02

Daily Brief South Korea: Young Poong Precision, Young Poong, K Bank and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Choi Family Launches a Counter Tender Offer for Young Poong Precision
Choi Drops a Counter-Tender for Young Poong Precision at ₩30,000 Before the Market Bell Tomorrow
Young Poong Precision (036560 KS): Choi’s Opening Salvo
Korean Holdcos Vs Opcos Gap Trading Opportunities in 4Q 2024
K Bank IPO – Should Price Below Its Range

Choi Family Launches a Counter Tender Offer for Young Poong Precision

Choi family has launched a counter tender offer for Young Poong Precision at the tender offer price of 30,000 won (20% higher than MBK’s 25,000 won tender offer price).
The tender offer involves a plan to acquire 3,837,500 shares (24.36% of outstanding shares) of Young Poong Precision.
All eyes are on the court’s decision on the injunction application for ‘prohibition of acquisition of treasury stocks by Korea Zinc’, which is expected to be announced on 2 October.

Choi Drops a Counter-Tender for Young Poong Precision at ₩30,000 Before the Market Bell Tomorrow

Choi aims to acquire 3.84 million shares (24.36%) of Young Poong Precision at ₩30,000 each, with a tender period from October 2 to November 1, managed by Hana Securities.
Seoul Economic Daily may not be as prominent, but they reliably scoop this type of news, making it likely Choi will announce their counter-tender for Young Poong Precision tomorrow.
MBK targets the full 49.14% stake, while the Choi family seeks about half, creating proration risk, which may still make MBK’s lower offer more appealing to shareholders.

Young Poong Precision (036560 KS): Choi’s Opening Salvo

The Choi family have launched a Tender Offer to acquire 3.937mn shares (25%) of Young Poong Precision (036560 KS) (YPP) at ₩30,000/share, 20% above MBK/Young Poong (000670 KS)‘s revised terms.
YPP’s key attraction is its 1.85% stake in Korea Zinc (010130 KS), which is the ultimate prize in this tussle between the Choi and Jang families.
Choi’s Offer runs from today (2nd October) to 21 October. There is no minimum acceptance threshold. If successful, the Choi’s stake increases to 60.45% from 35.45% currently.

Korean Holdcos Vs Opcos Gap Trading Opportunities in 4Q 2024

In this insight, we highlight the recent pricing gap divergences of the major Korean holdcos and opcos which could provide trading opportunities in 4Q 2024.
Volatility has been high in the Korean stock market in the past several weeks resulting in some interesting widening of some gaps among numerous holdcos and opcos in Korea.
Of the 38 pair trades, 19 of them involved holdcos outperforming opcos in the past six months and the other 19 opcos outperforming holdcos in the same period.

K Bank IPO – Should Price Below Its Range

By Sumeet Singh

K Bank (279570 KS) plans to raise up to US$740m in its upcoming South Korean IPO.
K Bank is one of three Internet-only banks in Korea. It provides a full range of commercial banking products and services.
In our previous note, we have looked at the company’s past performance and undertaken a peer comparison. In this note, we will talk about valuations.

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Oct 01

Daily Brief South Korea: Leeno Industrial, Shinsegae Eng & Construction, Doosan Robotics , Korea Zinc and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

NPS Cash Inflow Projections for KRX Value-Up Index & Surging Interest in KOSDAQ Stocks
Shinsegae E&C (034300 KS)’s Delisting Offer
End of Mandatory Lock-Up Periods for 39 Companies in Korea in October 2024
(Mostly) Asia M&A, Sep 2024: GTJA/Haitong Sec, Korea Zinc/YPP, Hotel Property, Virgin Money, Raysum

NPS Cash Inflow Projections for KRX Value-Up Index & Surging Interest in KOSDAQ Stocks

NPS will likely use the KRX Value-Up Index as its benchmark, with Long-Term Growth and Value categories likely to adopt it.
When NPS shifts to the Value-Up Index, KOSDAQ stocks will likely drive significant flow impacts due to their lower overlap.
These non-overlapping KOSDAQ stocks, attracting over 1 trillion won, could see significant price impacts as funds gradually flow in.

Shinsegae E&C (034300 KS)’s Delisting Offer

Construction services play Shinsegae E&C (034300 KS) has announced a Tender Offer from E Mart (139480 KS) for 27.33% of shares out, at ₩18,300/share, a 14% premium to undisturbed.
E Mart holds 70.46% – and the company holds 2.21% in treasuries – therefore, E Mart requires ~22% of the remaining ~27% held by minorities to tender and force delisting.
Super clean deal. E Mart will acquire all shares tendered. The Offer kicks off today, and closes on the 29th October. There is no minimum tendering % condition.

End of Mandatory Lock-Up Periods for 39 Companies in Korea in October 2024

We discuss the end of the mandatory lock-up periods for 39 stocks in Korea in October 2024, among which four are in KOSPI and 35 are in KOSDAQ.
These 39 stocks on average could be subject to further selling pressures in October and could underperform relative to the market.
The top three market cap stocks including those of which at least 1% of outstanding shares could be sold in October are Korea Zinc, Doosan Robotics, and Kolon TissueGene.

(Mostly) Asia M&A, Sep 2024: GTJA/Haitong Sec, Korea Zinc/YPP, Hotel Property, Virgin Money, Raysum

For the month of September 2024, 15 new transactions (firm and non-binding) were discussed on Smartkarma with an overall announced deal size of ~US$23bn.
The average premium for the new transactions announced (or first discussed) in September was ~43%. The average premium YTD is ~44%
This compares to the average premium for transactions in 2023 (117 transactions), 2022 (106), 2021 (165), 2020 (158), and 2019 (145 ) of 39%, 41%, 33%, 31%, and 31% respectively.

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Sep 30

Daily Brief South Korea: Shinsegae Eng & Construction, Wonik Ips and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Emart’s Tender Offer for Shinsegae Construction: Arb Trading Angles
FnGuide Semiconductor Top10 Index Rebalance Preview: Wonik IPS to Replace ISC
Tender Offer and Taking Private of Shinsegae E&C by E Mart

Emart’s Tender Offer for Shinsegae Construction: Arb Trading Angles

E Mart Inc is launching a tender offer for 27.33% of Shinsegae Eng & Construction, offering ₩18,300 per share, a 14% premium, from September 30 to October 29.
This tender’s got zero cancellation or proration risk since they’re all in to buy every share tendered. That makes it a prime event for close spread tracking and trading opportunities.
Emart needs 95% of Shinsegae Construction’s shares to delist, requiring 22% of the remaining 27%. If they can’t get it, a stock swap with Emart shares is likely.

FnGuide Semiconductor Top10 Index Rebalance Preview: Wonik IPS to Replace ISC

By Brian Freitas

Today is the last trading day in the review period for the October rebalance of the FnGuide Semiconductor Top10 Index.
Wonik Ips (240810 KS) is a high probability add and ISC Co Ltd (095340 KS) is a high probability delete. This will reverse the changes from the April rebalance.
Passive trackers will need to buy over 3.5x ADV in Wonik Ips (240810 KS) and sell nearly 2x ADV in ISC Co Ltd (095340 KS).

Tender Offer and Taking Private of Shinsegae E&C by E Mart

E Mart Inc (139480 KS) is conducting a tender offer of 27.33% of Shinsegae Eng & Construction (034300 KS) (2,126,611 shares) and trying to take the company private afterwards.
The tender offer price is 18,300 won, which is 14% higher than the closing price on Friday (27 September).
Tender offer is likely to result in higher price of Shinsegae E&C in the near term but it could be difficult for E Mart to take it private this year.

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Sep 29

Daily Brief South Korea: Kum Yang and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Kumyang’s Capital Raise Drop: Breaking It Down from an Arb Trading Play
Kum Yang: Rights Offering Capital Raise of 450 Billion Won

Kumyang’s Capital Raise Drop: Breaking It Down from an Arb Trading Play

Kumyang’s major shareholders are backing the capital raise, committing ₩160B of the ₩450B total. We’re also likely to see some robust price support for the stock rights in early phases.
Institutional investors still make up about 10% of the SO, with around 8% being active players. These guys could easily start dumping stock rights in bulk.
Retail holds nearly 50% of the SO, increasing volatility and boosting chances for arb spreads. Kumyang’s stock futures have solid liquidity, making it a prime arb trading setup.

Kum Yang: Rights Offering Capital Raise of 450 Billion Won