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

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

HMM CEO Letter to Shareholders Concerning Share Price Decline

MSCI Korea Index SAIR: HMM, Big Hit, SKC, & Maybe Green Cross (But Not SK BioS)

Korea Shorting Resumes Next Week: Immediate Target Stocks on the Radar

Clepsydra Capital

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

Event-Driven

<p><a href="https://www.smartkarma.com/entities/hmm-co-ltd" target="_blank" data-smartkarma-citation="entities:13494:1" rel="noopener"></a>HMM is down +5% this morning on the concern that KDB will likely convert the CBs into stocks at maturity on June 30, causing a potential overhang in the market.</p><p>The one getting the market attention is the 190th unsecured privately held convertible bond. The bondholder is KDB, and the maturity is June 30. The par value is ₩300.0B, but the conversion price is a mere ₩5,000, translating into 60M ordinary shares.</p><table class="table table-striped">
<colgroup>
<col width="300">
<col width="300">
</colgroup>
<tbody>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Outstanding convertible bonds"}'>Outstanding convertible bonds</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Type"}'>Type</td>
<td data-sheets-value='{"1":2,"2":"The 190th unsecured privately held convertible bond\nPrivate Equity Convertible Bonds"}'>The 190th unsecured privately held convertible bond</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Bondholder"}'>Bondholder</td>
<td data-sheets-value='{"1":2,"2":"KDB"}'>KDB</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Issuance date"}'>Issuance date</td>
<td data-sheets-value='{"1":2,"2":"2016.12.19"}'>2016.12.19</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Maturity"}'><strong>Maturity</strong></td>
<td data-sheets-value='{"1":2,"2":"2021.06.30"}'><strong>2021.06.30</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Par value"}'>Par value</td>
<td data-sheets-value='{"1":3,"3":300}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=300000000000/1000000000">₩300.0B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Conversion target share type"}'>Conversion target share type</td>
<td data-sheets-value='{"1":2,"2":"Ordinary share"}'>Ordinary share</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Conversion rate"}'>Conversion rate</td>
<td data-sheets-value='{"1":3,"3":1}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>100.00%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Conversion price"}'><strong>Conversion price</strong></td>
<td 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 data-sheets-value='{"1":3,"3":60000000}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'><strong>60,000,000</strong></td>
</tr>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><p>KDB isn't saying anything about whether to convert these bonds into stocks on June 30. If not converted, KDB will get back the original investment with a 3% interest. It'd surely be insane to give up on a 7~8x return if converted into stocks for ₩5,000 at the current price of ₩43,000.</p><p>If fully converted, which is very likely at this point, the outstanding shares will rise by 17.37%, and KDB's shareholding will increase to 24.96%.</p><table class="table table-striped">
<colgroup>
<col width="200">
<col width="80">
<col width="80">
<col width="80">
<col width="80">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"HMM shareholding"}'>HMM 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":"Shareholding %"}'>Shareholding %</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"After fully converted"}'>After fully converted</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Shareholding %"}'>Shareholding %</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"KDB"}'>KDB</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":41199297}'>41,199,297</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.11928255115751837}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=R[0]C[-1]/R2C6">11.93%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":101199297}' data-sheets-formula="=(R[0]C[-2]+List!R[8]C[-2])">101,199,297</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.24963288725180544}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=R[0]C[-1]/R3C6"><strong>24.96%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Executives"}'>Executives</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":155225}'>155,225</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.0004494162607538131}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=R[0]C[-1]/R2C6">0.04%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":155225}' data-sheets-formula="=R[0]C[-2]">155,225</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.00038290053461202895}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=R[0]C[-1]/R3C6"><strong>0.04%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Treasury shares"}'>Treasury shares</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1038396}'>1,038,396</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.0030064232404684588}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=R[0]C[-1]/R2C6">0.30%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1038396}' data-sheets-formula="=R[0]C[-2]">1,038,396</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.0025614584218971973}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=R[0]C[-1]/R3C6"><strong>0.26%</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":13943850}'>13,943,850</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.040371028684245816}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=R[0]C[-1]/R2C6">4.04%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":13943850}' data-sheets-formula="=R[0]C[-2]">13,943,850</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.034395926039941634}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=R[0]C[-1]/R3C6"><strong>3.44%</strong></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":24527807}'>24,527,807</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.07101430379404865}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=R[0]C[-1]/R2C6">7.10%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":24527807}' data-sheets-formula="=R[0]C[-2]">24,527,807</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.060503851912776074}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=R[0]C[-1]/R3C6"><strong>6.05%</strong></td>
</tr>
<tr><td colspan="5" data-sheets-value='{"1":2,"2":"Source: KRX FIND"}'>Source: KRX FIND</td></tr>
</tbody>
</table>

HMM is down +5% this morning on the concern that KDB will likely convert the CBs into stocks at maturity on June 30, causing a potential overhang in the market.The one getting the market attention is the 190th unsecured privately held convertible bond. The bondholder is KDB, and the maturity is June 30. The par value is ₩300.0B, but the conversion price is a mere ₩5,000, translating into 60M ordinary shares.





Outstanding convertible bonds

Type
The 190th unsecured privately held convertible bond


Bondholder
KDB


Issuance date
2016.12.19


Maturity
2021.06.30


Par value
₩300.0B


Conversion target share type
Ordinary share


Conversion rate
100.00%


Conversion price
₩5,000


Convertible shares
60,000,000

Source: DART

KDB isn't saying anything about whether to convert these bonds into stocks on June 30. If not converted, KDB will get back the original investment with a 3% interest. It'd surely be insane to give up on a 7~8x return if converted into stocks for ₩5,000 at the current price of ₩43,000.If fully converted, which is very likely at this point, the outstanding shares will rise by 17.37%, and KDB's shareholding will increase to 24.96%.









HMM shareholding
Current
Shareholding %
After fully converted
Shareholding %


KDB
41,199,297
11.93%
101,199,297
24.96%


Executives
155,225
0.04%
155,225
0.04%


Treasury shares
1,038,396
0.30%
1,038,396
0.26%


Korea Ocean Business Corporation
13,943,850
4.04%
13,943,850
3.44%


Korea Credit Guarantee Fund
24,527,807
7.10%
24,527,807
6.05%

Source: KRX FIND



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

HMM Co., Ltd.

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