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

Sanghyun Park

I investigate special situations, pairs, and index rebalancing trades in Korea.

Korea / Special Sits, Pairs, Index Rebalancing

GS Retail Merger Arbitrage: Yield Back at +6% & Local Arb Traders in Action

GS Merger Arb: Let's Capitalize on a Potential Arb Yield Spike on KOSDAQ 150 Rebalancing (June 28)

GS Retail/Home Shopping Merger Swap: Currently at 3.4% Div-Adj. Spread

GS Retail Merger Swap Arb Trade Begins This Monday

Clepsydra Capital

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

Event-Driven

<p>GS Retail merger swap now gives an arb yield of 4.27% at the current prices. If you short 4.22368 GS Retail shares at the current price of ₩36,250 and buy one GS Home Shopping share at the current price of ₩146,400, you will virtually fix your trade yield at 4.27%.</p><table class="table table-striped">
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<td data-sheets-value='{"1":2,"2":"Spread - swap"}'>Merger swap arb trade yield</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Acquirer"}'>GS Retail</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Target company"}'>GS Home Shopping</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Current price"}'>Current price</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":36250}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula='=googlefinance(Terms!R[2]C[0], "price")'>₩36,250</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":146400}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula='=googlefinance(Terms!R[5]C[-1], "price")'>₩146,400</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap price"}'>Swap price</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":33800}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=Terms!R[7]C[0]">₩33,800</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":142762}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=Terms!R[13]C[-1]">₩142,762</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Gain/loss"}'><strong>Gain/loss</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.06758620689655172}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[-2]C[0]-R[-1]C[0])/R[-2]C[0]"><strong>6.76%</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.024849726775956284}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[-1]C[0]-R[-2]C[0])/R[-2]C[0]"><strong>-2.48%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Spread"}'><strong>Spread</strong></td>
<td colspan="2" rowspan="1" style="text-align: right;" data-sheets-value='{"1":3,"3":0.04273648012059543}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=R[-1]C[0]+R[-1]C[1]"><strong>4.27%</strong></td>
</tr>
<tr><td colspan="3" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART &amp; KRX"}'>Source: DART &amp; KRX</td></tr>
</tbody>
</table><div>
<p>When short-selling resumes this Monday, the arb yield stayed at 1.59%. It has gradually climbed back to a +4% level now. Like the previous local merger swap cases, GS seems to require as many arb traders as possible to minimize stock repurchase cost.</p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/204/782/original/GS+Retail+%26+GS+Home+Shopping+merger+swap+arb+yield.png?1620351095" class="editor-image img-responsive" data-smartkarma-image-id="204782"></figure></section><hr>
<p>For those who aren't familiar with this event, here is a quick recap.</p>
<p>GS Retail will merge with GS Home Shopping through a stock swap. The GS Home Shopping shareholders will get 4.22368 GS Retail shares for each GS Home Shopping share.</p>
</div><div><div><table class="table table-striped">
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<col width="300">
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<tbody>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Overview (₩B)"}'>Overview (₩B)</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Type"}'>Type</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Stock swap"}'>Stock swap</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Acquirer"}'>Acquirer</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"GS Retail Co Ltd"}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>GS Retail Co Ltd (007070)</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Target company"}'>Target company</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"GS Home Shopping Inc."}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>GS Home Shopping Inc. (028150)</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Offering price"}'><strong>Swap price for GS Retail</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":33800}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}'><strong>₩33,800</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Target price"}'><strong>Swap price for GS Home Shopping</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":142762}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}'><strong>₩142,762</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap ratio"}'><strong>Swap ratio</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":4.2236834}' data-sheets-numberformat='{"1":2,"2":"#,##0.0000000","3":1}'><strong>4.2236834</strong></td>
</tr>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table></div></div><div>The next big day is the shareholder meeting scheduled for May 28. Yes, there is a cancellation risk if not getting shareholder approval on May 28. Combining the NPS and the friendly shareholders (Hanjin), the controlling stake reaches 72% for Retail and 50% for Home Shopping. It seems that the risk of not getting shareholder approval is pretty low.</div><div>
<br><table class="table table-striped">
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<tbody>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Timetable"}' data-sheets-note="Sang Hyun Park: We have to buy shares until BOD+1 to be eligible to receive stock purchase rights. We then have to notify our dissenting opinion until the end of dissenting opinion notice period.">Timetable</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"EGM"}'><strong>Shareholder meeting</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44344}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'><strong>2021. 5. 28</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Stock purchase right exercise begins"}'>Stock purchase right exercise (GS Retail &amp; GS Home Shopping)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44344}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'>2021. 5. 28 ~ 6. 29</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Trade suspension begins - GS Home Shopping"}'><strong>Trade suspension (GS Home Shopping)</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44376}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'><strong>2021. 6. 29 ~ 7. 15</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Listing"}'>Listing</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44393}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'>2021. 7. 16</td>
</tr>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table>
<p>Also, the stock purchase cost ceiling is set at ₩350.0B combined for both. The exercise prices are currently 5.73% and 5.22% below the current prices for GS Retail and GS Home Shopping. </p>
<table class="table table-striped">
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<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Spread - stock purchase"}'>Spread - stock purchase</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Acquirer"}'>GS Retail</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Target company"}'>GS Home Shopping</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Current price"}'>Current price</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":36200}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=R[-35]C[0]">₩36,200</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":146500}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=R[-35]C[0]">₩146,500</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Exercise price"}'>Exercise price</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":34125}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=Terms!R[-16]C[0]">₩34,125</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":138855}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=Terms!R[-15]C[-1]">₩138,855</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Spread"}'><strong>Spread</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.057320441988950276}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[-1]C[0]-R[-40]C[0])/R[-40]C[0]"><strong>-5.73%</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.05218430034129693}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[-1]C[0]-R[-40]C[0])/R[-40]C[0]"><strong>-5.22%</strong></td>
</tr>
<tr><td colspan="3" data-sheets-value='{"1":2,"2":"Source: DART &amp; KRX"}'>Source: DART &amp; KRX</td></tr>
</tbody>
</table>
</div>

GS Retail merger swap now gives an arb yield of 4.27% at the current prices. If you short 4.22368 GS Retail shares at the current price of ₩36,250 and buy one GS Home Shopping share at the current price of ₩146,400, you will virtually fix your trade yield at 4.27%.







Merger swap arb trade yield
GS Retail
GS Home Shopping


Current price
₩36,250
₩146,400


Swap price
₩33,800
₩142,762


Gain/loss
6.76%
-2.48%


Spread
4.27%

Source: DART &amp; KRX


When short-selling resumes this Monday, the arb yield stayed at 1.59%. It has gradually climbed back to a +4% level now. Like the previous local merger swap cases, GS seems to require as many arb traders as possible to minimize stock repurchase cost.

For those who aren't familiar with this event, here is a quick recap.
GS Retail will merge with GS Home Shopping through a stock swap. The GS Home Shopping shareholders will get 4.22368 GS Retail shares for each GS Home Shopping share.






Overview (₩B)

Type
Stock swap


Acquirer
GS Retail Co Ltd (007070)


Target company
GS Home Shopping Inc. (028150)


Swap price for GS Retail
₩33,800


Swap price for GS Home Shopping
₩142,762


Swap ratio
4.2236834

Source: DART

The next big day is the shareholder meeting scheduled for May 28. Yes, there is a cancellation risk if not getting shareholder approval on May 28. Combining the NPS and the friendly shareholders (Hanjin), the controlling stake reaches 72% for Retail and 50% for Home Shopping. It seems that the risk of not getting shareholder approval is pretty low.
 





Timetable

Shareholder meeting
2021. 5. 28


Stock purchase right exercise (GS Retail &amp; GS Home Shopping)
2021. 5. 28 ~ 6. 29


Trade suspension (GS Home Shopping)
2021. 6. 29 ~ 7. 15


Listing
2021. 7. 16

Source: DART


Also, the stock purchase cost ceiling is set at ₩350.0B combined for both. The exercise prices are currently 5.73% and 5.22% below the current prices for GS Retail and GS Home Shopping. 








Spread - stock purchase
GS Retail
GS Home Shopping


Current price
₩36,200
₩146,500


Exercise price
₩34,125
₩138,855


Spread
-5.73%
-5.22%

Source: DART &amp; KRX




GS Retail Merger Swap Arb Yield Currently at 4.27%: Trade It Now Rather than Later