In today’s briefing:
- Celltrion Merger Swap Event: Trading Dynamics Post-Merger Approval
- Merger Arb Mondays (23 Oct) – Eoflow, Celltrion Healthcare, JSR, Origin, Lithium Power, Poly Culture
- Seoul Guarantee Insurance Corp IPO – Cancelled
- KOSDAQ150 Index Rebalance Preview: Big Sell Off Among Potential Inclusions as Momentum Fades
- KOSPI200 Index Rebalance Preview: The Tail End
- Understanding Kakao Bank’s Overhang Risk from Legal Consequences for Kakao Corp
Celltrion Merger Swap Event: Trading Dynamics Post-Merger Approval
- Celltrion Chairman Seo made a public statement, affirming that they are prepared to bear the entire cost, even if it exceeds the ₩1T ceiling, and proceed with the merger.
- The relatively substantial cost risk associated with Celltrion Inc. due to the involvement of NPS is causing the merger swap spread to widen once more in comparison to Celltrion Healthcare.
- If the prices persist above the appraisal rights exercise prices, the relative cost risk for Celltrion Inc. could escalate, leading to a significant widening of the swap spread.
Merger Arb Mondays (23 Oct) – Eoflow, Celltrion Healthcare, JSR, Origin, Lithium Power, Poly Culture
- We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
- Highest spreads – 111 Inc (YI US), Eoflow (294090 KS), Hollysys Automation Technologies (HOLI US), JSR Corp (4185 JP), Haitong International Securities Group (665 HK), Lithium Power International (LPI AU).
- Lowest spreads – Healius (HLS AU), Pact Group Holdings (PGH AU), Origin Energy (ORG AU), T&K Toka Co Ltd (4636 JP), Kenedix Retail REIT (3453 JP), Chindata Group (CD US).
Seoul Guarantee Insurance Corp IPO – Cancelled
- Seoul Guarantee Insurance (031210 KS) stated today that it will cancel its IPO mainly due to low demand.
- Despite the company’s emphasis on high dividends and high ROA of 5.8% in 2022 (5x average ROA of the domestic non-life insurance companies), many institutional investors emphasized on the negatives.
- The major negatives include high interest rates, lack of growth potential, concerns about additional shares sale overhang, and unattractive valuations.
KOSDAQ150 Index Rebalance Preview: Big Sell Off Among Potential Inclusions as Momentum Fades
- With the review period nearly complete, we see 15 potential changes for the KOSDAQ 150 Index (KOSDQ150 INDEX) at the December rebalance.
- There could be index changes even before the December rebalance if there are prolonged trading suspensions and stocks migrate from the KOSDAQ Market to the KOSPI Market.
- The potential adds have sold off hard over the last six weeks, similar to the performance at the June rebalance.
KOSPI200 Index Rebalance Preview: The Tail End
- With the review period nearly complete, we expect 7 changes to the Korea Stock Exchange KOSPI 200 (KOSPI2 INDEX) in December. Couple of changes are low probability though.
- The Materials sector could be the biggest gainer at the rebalance while nearly all deletions could come from the Consumer Discretionary sector.
- The impact on the potential inclusion ranges from 0.15-15 days of ADV while the impact on the potential deletions varies from 1.7-8.1 days of ADV.
Understanding Kakao Bank’s Overhang Risk from Legal Consequences for Kakao Corp
- Financial regulators will likely mandate Kakao Corp to divest all but 10% of its stake in Kakao Bank. The deadline is six months from the date of the order.
- If this issue is resolved through the forced sale of the stake, it is anticipated that this stake volume will eventually be released into the market through block deals.
- Kakao may proactively divest its Kakao Bank stake to transfer the majority shareholder position to KIS, regardless of the judicial outcome.
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