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

Hyundai E&C's Unusual 1P Offering with a Shocking 45% Discount

Clepsydra Capital

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

Event-Driven

Hyundai Engineering & Construction / Event-Driven

Hyundai Engineering & Construction (000720 KS)

<p>Hyundai E&amp;C 1P's subscription rights trading was very active on the first trading day. In this event, which offers a total of 2 million preferred shares, 1.83M subscription rights are listed for trade.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Hyundai E&amp;C 68PR"}'>Hyundai E&amp;C 68PR</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Total offering"}'>Total offering</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2000000}' data-sheets-numberformat='{"1":2,"2":"#,##0"}'>2,000,000</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Subscription rights listed for trade"}'>Subscription rights listed for trade</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1832367}' data-sheets-numberformat='{"1":2,"2":"#,##0"}'>1,832,367</td>
</tr>
<tr><td colspan="2">Source: KRX</td></tr>
</tbody>
</table><p>Of this, 0.51M, nearly a third, was traded on the first trading day. Interestingly, however, the rights price fell sharply in the afternoon, ending at ₩3,460. On this day, VWAP was ₩6,419.</p><table class="table table-striped">
<colgroup>
<col width="300">
<col width="100">
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Subscription rights (₩)"}'>Subscription rights</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Close"}'>Close</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Volume"}'>Volume</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Value"}'>Value</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"VWAP"}'>VWAP</td>
</tr>
<tr>
<td data-sheets-value='{"1":3,"3":44470}' data-sheets-numberformat='{"1":5,"2":"mm\"/\"dd","3":1}' data-sheets-formula="=R[-1]C[0]-4">10/01</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":3460}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}'>₩3,460</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":510183}' data-sheets-numberformat='{"1":2,"2":"#,##0"}'>510,183</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":3274741535}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}'>₩3,274,741,535</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":6418.7586317066625}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-formula="=R[0]C[-1]/R[0]C[-2]">₩6,419</td>
</tr>
<tr><td colspan="5" data-sheets-value='{"1":2,"2":"Source: KRX"}'>Source: KRX</td></tr>
</tbody>
</table><div><p>This offering has a whopping 45% discount. The specific formula of how to fix the offering price is shown below.</p></div><div><div>
<table class="table table-striped">
<colgroup>
<col width="400">
<col width="400">
</colgroup>
<tbody>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Pricing"}'>Pricing</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"1st round"}'>1st round</td>
<td data-sheets-value='{"1":2,"2":"RP × (1 - 45%) / [1 + (1.79% × 45%)]"}' data-sheets-formula='="RP × (1 - "&amp;(R[11]C[0]*100&amp;"%")&amp;") / [1 + ("&amp;(R[12]C[0]*100&amp;"%"&amp;" × "&amp;(R[11]C[0]*100&amp;"%"&amp;")]"))'>RP × (1 - 45%) / [1 + (1.79% × 45%)]</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Reference price (RP)"}'>- Reference price (RP)</td>
<td data-sheets-value='{"1":2,"2":"Min [Close, Avg (Close, 1W VWAP, 1M VWAP)]"}'>Min [Close, Avg (Close, 1W VWAP, 1M VWAP)]</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Reference date"}'>- Reference date</td>
<td data-sheets-value='{"1":3,"3":44438}' data-sheets-numberformat='{"1":5,"2":"yyyy. mm. dd","3":1}' data-sheets-formula="=Terms!R[26]C[0]">2021. 08. 30</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Ex-rights base price"}'>Ex-rights base price</td>
<td data-sheets-value='{"1":2,"2":"[RP + (1st × 1.79%)] / (1 + 1.79%)"}' data-sheets-formula='="[RP + (1st × "&amp;R[9]C[0]*100&amp;"%"&amp;")] / (1 + "&amp;R[9]C[0]*100&amp;"%"&amp;")"'>[RP + (1st × 1.79%)] / (1 + 1.79%)</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Reference price (RP)"}'>- Reference price (RP)</td>
<td data-sheets-value='{"1":2,"2":"Previous close"}'>Previous close</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Reference date"}'>- Reference date</td>
<td data-sheets-value='{"1":3,"3":44440}' data-sheets-numberformat='{"1":5,"2":"yyyy. mm. dd","3":1}' data-sheets-formula="=Terms!R[24]C[0]">2021. 09. 01</td>
</tr>
<tr><td colspan="2"></td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"2nd round"}'><strong>2nd round</strong></td>
<td data-sheets-value='{"1":2,"2":"RP × (1 - 45%)"}' data-sheets-formula='="RP × (1 - "&amp;(R[5]C[0]*100&amp;"%")&amp;")"'><strong>RP × (1 - 45%)</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Reference price (RP)"}'><strong>- Reference price (RP)</strong></td>
<td data-sheets-value='{"1":2,"2":"Min [Close, Avg (Close, 1W VWAP)]"}'><strong>Min [Close, Avg (Close, 1W VWAP)]</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Reference date"}'><strong>- Reference date</strong></td>
<td data-sheets-value='{"1":3,"3":44487}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}' data-sheets-formula="=Terms!R[25]C[0]"><strong>2021. 10. 18</strong></td>
</tr>
<tr><td colspan="2"><strong> </strong></td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Final"}'>Final</td>
<td data-sheets-value='{"1":2,"2":"Min (1st, 2nd)"}'>Min (1st, 2nd)</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Reference date"}'>- Reference date</td>
<td data-sheets-value='{"1":3,"3":44487}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}' data-sheets-formula="=Terms!R[23]C[0]">2021. 10. 18</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Discount rate"}'><strong>Discount rate</strong></td>
<td data-sheets-value='{"1":3,"3":0.45}'><strong>45.00%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Capital increase rate"}'>Capital increase rate</td>
<td data-sheets-value='{"1":3,"3":0.0179}' data-sheets-formula="=Terms!R[4]C[0]">1.79%</td>
</tr>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table>
<p>The 1st round price got settled at ₩98,300, which, of course, serves as the ceiling price since whichever lower of the 1st and the 2nd will be the final price.</p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/233/488/original/1.png?1633388693" class="editor-image img-responsive" data-smartkarma-image-id="233488"></figure></section><p>Of course, we don't know where and how much the 1P price will head and will get corrected before the 2nd round pricing date, which is October 18. But at the current price, we have this vast spread. If we buy subscription rights at the last close (₩3,460) and the current 1P share price holds until October 18, we will likely enjoy a 75.40% return.</p>
<table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Spread status"}'>Spread status</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":172000}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-formula='=googlefinance(Terms!R[-11]C[0], "price")'>₩172,000</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":": 45% discount"}'>: 45% discount</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":94600.00000000001}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-formula="=R[-1]C[0]*(1-0.45)">₩94,600</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Subscription rights price"}'>Subscription rights price</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":3460}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-formula="=R[-14]C[0]">₩3,460</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":0.7540281460330407}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=(R[-3]C[0]-(R[-2]C[0]+R[-1]C[0]))/(R[-2]C[0]+R[-1]C[0])"><strong>75.40%</strong></td>
</tr>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Source: KRX"}'>Source: KRX</td></tr>
</tbody>
</table>
</div></div>

Hyundai E&amp;C 1P's subscription rights trading was very active on the first trading day. In this event, which offers a total of 2 million preferred shares, 1.83M subscription rights are listed for trade.





Hyundai E&amp;C 68PR

Total offering
2,000,000


Subscription rights listed for trade
1,832,367

Source: KRX

Of this, 0.51M, nearly a third, was traded on the first trading day. Interestingly, however, the rights price fell sharply in the afternoon, ending at ₩3,460. On this day, VWAP was ₩6,419.









Subscription rights
Close
Volume
Value
VWAP


10/01
₩3,460
510,183
₩3,274,741,535
₩6,419

Source: KRX

This offering has a whopping 45% discount. The specific formula of how to fix the offering price is shown below.






Pricing

1st round
RP × (1 - 45%) / [1 + (1.79% × 45%)]


- Reference price (RP)
Min [Close, Avg (Close, 1W VWAP, 1M VWAP)]


- Reference date
2021. 08. 30


Ex-rights base price
[RP + (1st × 1.79%)] / (1 + 1.79%)


- Reference price (RP)
Previous close


- Reference date
2021. 09. 01



2nd round
RP × (1 - 45%)


- Reference price (RP)
Min [Close, Avg (Close, 1W VWAP)]


- Reference date
2021. 10. 18

 

Final
Min (1st, 2nd)


- Reference date
2021. 10. 18


Discount rate
45.00%


Capital increase rate
1.79%

Source: DART


The 1st round price got settled at ₩98,300, which, of course, serves as the ceiling price since whichever lower of the 1st and the 2nd will be the final price.
Of course, we don't know where and how much the 1P price will head and will get corrected before the 2nd round pricing date, which is October 18. But at the current price, we have this vast spread. If we buy subscription rights at the last close (₩3,460) and the current 1P share price holds until October 18, we will likely enjoy a 75.40% return.






Spread status

Current price
₩172,000


: 45% discount
₩94,600


Subscription rights price
₩3,460


Spread
75.40%

Source: KRX




Hyundai E&C 1P Offering: A Vast Spread, but Worth Taking the Risk?