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

HMM, Another Massive CB Conversion (Share Dilution) Risk & Short Trading Opportunity

HMM CEO Letter to Shareholders Concerning Share Price Decline

HMM Perpetual Bond Conversion Situation Update for Short Position

HMM CB Conversion on June 30: Shareholding Dilution & Float Reduction Risks

Clepsydra Capital

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

Event-Driven

<p>Korea Development Bank Chairman Lee Dong-geol confirmed that KDB would convert ₩300B worth of HMM convertible bonds into stocks. Chairman Lee said that if KDB gave up profits through CB conversion, it would be a breach of trust. However, Chairman Lee did not say much about the sale of HMM.</p><h2>Shareholding dilution</h2><p>The one that Chairman Lee is talking about is the 190th unsecured privately held convertible bond having maturity on June 30. The par value is ₩300.0B, but the conversion price is ₩5,000 (only about one-tenth of the current share price), translating into 60M ordinary shares.</p><table class="table table-striped">
<colgroup>
<col width="300">
<col width="300">
</colgroup>
<tbody>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Outstanding convertible bonds"}'>The 190th unsecured privately held convertible bond</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Maturity"}'>Maturity</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"2021.06.30"}'>2021.06.30</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Par value"}'><strong>Par value</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":300}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=300000000000/1000000000"><strong>₩300.0B</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Conversion price"}'><strong>Conversion price</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":5000}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}'><strong>₩5,000</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Convertible shares"}'><strong>Convertible shares</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":60000000}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'><strong>60,000,000 shares</strong></td>
</tr>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><div>
<p>Shareholding dilution should inevitably follow. The outstanding shares will rise by 17.4%, with a shareholding dilution of 14.8%. KDB's controlling stake will increase to 25.0%.</p>
<table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"HMM shareholding"}'>Shareholding</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Current"}'>Current</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Full conversion"}'>Full conversion</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"KDB"}'><strong>KDB</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.1193}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'><strong>11.93%</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.2496}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'><strong>24.96%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Korea Ocean Business Corporation"}'>Korea Ocean Business Corporation</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.0404}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>4.04%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.0344}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>3.44%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Korea Credit Guarantee Fund"}'>Korea Credit Guarantee Fund</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.071}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>7.10%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.0605}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>6.05%</td>
</tr>
<tr><td colspan="3" data-sheets-value='{"1":2,"2":"Source: KRX FIND"}'>Source: KRX FIND</td></tr>
</tbody>
</table>
<h2>New share listing date</h2>
<p>Korea applies a 15-day delay listing system for convertible bonds that are converted into stocks.</p>
<ul>
<li>Convertible bonds converted into stocks from the 1st to the 15th of every month are listed at the end of the month.</li>
<li>Similarly, convertible bonds exercised between the 16th and 31st of each month are listed on the 15th of the following month.</li>
</ul>
<p>KDB's 190th unsecured privately held convertible bond has an exercise period of 2017.12.18~2021.06.29. But KDB has yet to convert any of these convertible bonds. <strong>So, assuming that KDB converts all of them on June 29, these newly converted stocks will get listed on July 15</strong>.</p>
</div><div>
<h2>Float reduction</h2>
<p>The controlling stake now being at 25% leads to a 12.39%p reduction in the free-float rate. The float after a full conversion falls to 71.30%.</p>
<table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"HMM shareholding"}'>Float reduction</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Current"}'>Current</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Full conversion"}'>Full conversion</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"KDB"}'>Non-float</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.1193}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>16.31%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.2496}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>28.70%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Korea Ocean Business Corporation"}'><strong>Float</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.0404}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'><strong>83.69%</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.0344}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'><strong>71.30%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Korea Credit Guarantee Fund"}'><strong> - Reduction</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.071}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'><strong>-</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.0605}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'><strong>12.39%p</strong></td>
</tr>
<tr><td colspan="3" data-sheets-value='{"1":2,"2":"Source: KRX FIND"}'>Source: KRX FIND</td></tr>
</tbody>
</table>
<div>
<br><br>
</div>
</div>

Korea Development Bank Chairman Lee Dong-geol confirmed that KDB would convert ₩300B worth of HMM convertible bonds into stocks. Chairman Lee said that if KDB gave up profits through CB conversion, it would be a breach of trust. However, Chairman Lee did not say much about the sale of HMM.Shareholding dilutionThe one that Chairman Lee is talking about is the 190th unsecured privately held convertible bond having maturity on June 30. The par value is ₩300.0B, but the conversion price is ₩5,000 (only about one-tenth of the current share price), translating into 60M ordinary shares.





The 190th unsecured privately held convertible bond

Maturity
2021.06.30


Par value
₩300.0B


Conversion price
₩5,000


Convertible shares
60,000,000 shares

Source: DART


Shareholding dilution should inevitably follow. The outstanding shares will rise by 17.4%, with a shareholding dilution of 14.8%. KDB's controlling stake will increase to 25.0%.








Shareholding
Current
Full conversion


KDB
11.93%
24.96%


Korea Ocean Business Corporation
4.04%
3.44%


Korea Credit Guarantee Fund
7.10%
6.05%

Source: KRX FIND


New share listing date
Korea applies a 15-day delay listing system for convertible bonds that are converted into stocks.

Convertible bonds converted into stocks from the 1st to the 15th of every month are listed at the end of the month.
Similarly, convertible bonds exercised between the 16th and 31st of each month are listed on the 15th of the following month.

KDB's 190th unsecured privately held convertible bond has an exercise period of 2017.12.18~2021.06.29. But KDB has yet to convert any of these convertible bonds. So, assuming that KDB converts all of them on June 29, these newly converted stocks will get listed on July 15.

Float reduction
The controlling stake now being at 25% leads to a 12.39%p reduction in the free-float rate. The float after a full conversion falls to 71.30%.








Float reduction
Current
Full conversion


Non-float
16.31%
28.70%


Float
83.69%
71.30%


 - Reduction
-
12.39%p

Source: KRX FIND



  



HMM CB Conversion Is Official: New Share Listing Schedule & KOSPI 200 Corporate Actions

HMM Co., Ltd.

HMM CB Conversion Is Official: New Share Listing Schedule & KOSPI 200 Corporate Actions