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

Jcontentree Rights Offering: Local Hedge Funds Made Their First Move for Arb Trade

Event-Driven

July 16 was the the day for the first round of price determination for <a href="https://www.smartkarma.com/entities/12711" target="_blank" data-smartkarma-citation="entities:12711:1">Jcontentree Corp (036420 KS)</a>.<table class="table table-striped"><tbody>
<tr><td colspan="2" style="width: 768px;">Event timeline</td></tr>
<tr>
<td style="width: 325.5249938964844px;">1st round of offering price determination</td>
<td style="text-align: right; width: 442.4750061035156px;">July 16, 2018</td>
</tr>
<tr>
<td style="width: 325.5249938964844px;">Ex-rights date</td>
<td style="text-align: right; width: 442.4750061035156px;">July 18, 2018</td>
</tr>
<tr>
<td style="width: 325.5249938964844px;">Subscription rights trade period (5 trading days)</td>
<td style="text-align: right; width: 442.4750061035156px;">Aug 22 - 28, 2018</td>
</tr>
<tr>
<td style="width: 325.5249938964844px;">Final offering price determination</td>
<td style="text-align: right; width: 442.4750061035156px;">Sep 3, 2018</td>
</tr>
<tr>
<td style="width: 325.5249938964844px;">Listing</td>
<td style="text-align: right; width: 442.4750061035156px;">Sep 28, 2018</td>
</tr>
<tr><td colspan="2" style="width: 768px;">Source: DART</td></tr>
</tbody></table>The company hasn't yet submitted a regulatory filing about the price, but we can do calculations ourselves according to the below formulas.<table class="table table-striped"><tbody>
<tr><td colspan="2" style="width: 771px;">Offering price determination</td></tr>
<tr>
<td style="width: 326.5874938964844px;">Reference price ①</td>
<td style="width: 444.4125061035156px;">Min [July 16 VWAP, (arithmetic avg. of July 16 VWAP, 1W VWAP ending July 16 and 1M VWAP ending July 16)]</td>
</tr>
<tr>
<td style="width: 326.5874938964844px;">Offering price ①</td>
<td style="width: 444.4125061035156px;">[Reference price ① × (1 - discount rate (20%))] / [1+(capital increase rate (26.2998753%) × discount rate (20%))]</td>
</tr>
<tr>
<td style="width: 326.5874938964844px;">Reference price ②</td>
<td style="width: 444.4125061035156px;">Min [Sep 3 VWAP, (arithmetic avg. of Sep 3 VWAP and 1W VWAP ending Sep 3)]</td>
</tr>
<tr>
<td style="width: 326.5874938964844px;">Offering price ②</td>
<td style="width: 444.4125061035156px;">[Reference price ② × (1 - discount rate (20%))]</td>
</tr>
<tr>
<td style="width: 326.5874938964844px;">Final offering price</td>
<td style="width: 444.4125061035156px;">Min [offering price ① and offering price ②]</td>
</tr>
<tr>
<td style="width: 326.5874938964844px;">→</td>
<td style="width: 444.4125061035156px;">But if the above-mentioned offering price is lower than VWAP on Aug 30 - Sep 3 with 40% discount (VWAP on Aug 30 - Sep 3 x 60%), then (VWAP on Aug 30 - Sep 3 x 60%) will be a new final offering price.</td>
</tr>
<tr>
<td style="width: 326.5874938964844px;">'Final final' offering price</td>
<td style="width: 444.4125061035156px;">MAX [MIN[offering price ① and offering price ②], (VWAP on Aug 30 - Sep 3 x 60%)]</td>
</tr>
<tr><td colspan="2" style="width: 771px;">Source: DART</td></tr>
</tbody></table>Thanks to the recent price surge over the past 5 trading days (up 9.87%), first round offering price was priced at ₩5,420, which is meaningfully higher than initially projected. So, it is now guaranteed that the offering price will be at least as low as ₩5,420 unless something radical happens during Aug 30 - Sep 3.<table class="table table-striped"><tbody>
<tr><td colspan="3">First round pricing calculations</td></tr>
<tr>
<td>1M VWAP ending July 16</td>
<td style="text-align: right;">6,940</td>
<td style="text-align: right;">A</td>
</tr>
<tr>
<td>1W VWAP ending July 16</td>
<td style="text-align: right;">7,050</td>
<td style="text-align: right;">B</td>
</tr>
<tr>
<td>1D VWAP on July 16</td>
<td style="text-align: right;">7,386</td>
<td style="text-align: right;">C</td>
</tr>
<tr>
<td>Arithmetic avg. of A, B, C</td>
<td style="text-align: right;">7,125</td>
<td style="text-align: right;">D</td>
</tr>
<tr>
<td>Reference price ①</td>
<td style="text-align: right;">7,125</td>
<td style="text-align: right;">E = Min [C, D]</td>
</tr>
<tr>
<td>Discount rate</td>
<td style="text-align: right;">20%</td>
<td style="text-align: right;">F</td>
</tr>
<tr>
<td>Capital increase rate</td>
<td style="text-align: right;">26.2998753%</td>
<td style="text-align: right;">G</td>
</tr>
<tr>
<td>Offering price ①</td>
<td style="text-align: right;">
5,420
* Rounded to the nearest ten
</td>
<td style="text-align: right;">[E × (1 - F)] / [1 + (G × F)]</td>
</tr>
<tr><td colspan="3">Source: <a href="https://www.smartkarma.com/profiles/354" target="_blank" data-smartkarma-citation="accounts:354">Sanghyun Park</a></td></tr>
</tbody></table><table class="table table-striped"><tbody>
<tr>
<td>Date</td>
<td style="text-align: right;">Closing price (₩)</td>
<td style="text-align: right;">Daily Δ</td>
<td style="text-align: right;">Trade volume</td>
<td style="text-align: right;">Trade value (₩)</td>
<td style="text-align: right;">Market cap (₩ mil)</td>
</tr>
<tr>
<td>
2018/07/16
* 1M VWAP period ends.
* 1W VWAP period ends.
</td>
<td style="text-align: right;">7,350</td>
<td style="text-align: right;">1.52%</td>
<td style="text-align: right;">2,069,593</td>
<td style="text-align: right;">15,285,031,530</td>
<td style="text-align: right;">838,407</td>
</tr>
<tr>
<td>2018/07/13</td>
<td style="text-align: right;">7,240</td>
<td style="text-align: right;">1.97%</td>
<td style="text-align: right;">1,932,261</td>
<td style="text-align: right;">13,992,307,260</td>
<td style="text-align: right;">825,859</td>
</tr>
<tr>
<td>2018/07/12</td>
<td style="text-align: right;">7,100</td>
<td style="text-align: right;">6.77%</td>
<td style="text-align: right;">4,187,089</td>
<td style="text-align: right;">29,377,896,740</td>
<td style="text-align: right;">809,890</td>
</tr>
<tr>
<td>2018/07/11</td>
<td style="text-align: right;">6,650</td>
<td style="text-align: right;">-0.60%</td>
<td style="text-align: right;">680,182</td>
<td style="text-align: right;">4,519,396,620</td>
<td style="text-align: right;">758,559</td>
</tr>
<tr>
<td>
2018/07/10
* 1W VWAP period begins.
</td>
<td style="text-align: right;">6,690</td>
<td style="text-align: right;">0.00%</td>
<td style="text-align: right;">1,581,666</td>
<td style="text-align: right;">10,500,790,290</td>
<td style="text-align: right;">763,121</td>
</tr>
<tr>
<td>2018/07/09</td>
<td style="text-align: right;">6,690</td>
<td style="text-align: right;">-4.70%</td>
<td style="text-align: right;">2,244,410</td>
<td style="text-align: right;">15,218,074,760</td>
<td style="text-align: right;">763,121</td>
</tr>
<tr>
<td>2018/07/06</td>
<td style="text-align: right;">7,020</td>
<td style="text-align: right;">-3.04%</td>
<td style="text-align: right;">3,136,818</td>
<td style="text-align: right;">21,621,004,160</td>
<td style="text-align: right;">800,764</td>
</tr>
<tr>
<td>2018/07/05</td>
<td style="text-align: right;">7,240</td>
<td style="text-align: right;">2.26%</td>
<td style="text-align: right;">1,849,464</td>
<td style="text-align: right;">13,335,087,450</td>
<td style="text-align: right;">825,859</td>
</tr>
<tr>
<td>2018/07/04</td>
<td style="text-align: right;">7,080</td>
<td style="text-align: right;">0.57%</td>
<td style="text-align: right;">2,205,079</td>
<td style="text-align: right;">15,646,107,540</td>
<td style="text-align: right;">807,608</td>
</tr>
<tr>
<td>2018/07/03</td>
<td style="text-align: right;">7,040</td>
<td style="text-align: right;">5.23%</td>
<td style="text-align: right;">7,163,564</td>
<td style="text-align: right;">50,487,988,350</td>
<td style="text-align: right;">803,046</td>
</tr>
<tr>
<td>2018/07/02</td>
<td style="text-align: right;">6,690</td>
<td style="text-align: right;">-4.70%</td>
<td style="text-align: right;">6,602,542</td>
<td style="text-align: right;">44,280,332,120</td>
<td style="text-align: right;">763,121</td>
</tr>
<tr>
<td>2018/06/29</td>
<td style="text-align: right;">7,020</td>
<td style="text-align: right;">-0.43%</td>
<td style="text-align: right;">993,304</td>
<td style="text-align: right;">6,918,282,740</td>
<td style="text-align: right;">800,764</td>
</tr>
<tr>
<td>2018/06/28</td>
<td style="text-align: right;">7,050</td>
<td style="text-align: right;">0.43%</td>
<td style="text-align: right;">521,994</td>
<td style="text-align: right;">3,700,658,680</td>
<td style="text-align: right;">804,186</td>
</tr>
<tr>
<td>2018/06/27</td>
<td style="text-align: right;">7,020</td>
<td style="text-align: right;">-2.36%</td>
<td style="text-align: right;">787,490</td>
<td style="text-align: right;">5,635,540,170</td>
<td style="text-align: right;">800,764</td>
</tr>
<tr>
<td>2018/06/26</td>
<td style="text-align: right;">7,190</td>
<td style="text-align: right;">1.13%</td>
<td style="text-align: right;">894,186</td>
<td style="text-align: right;">6,360,569,550</td>
<td style="text-align: right;">820,156</td>
</tr>
<tr>
<td>2018/06/25</td>
<td style="text-align: right;">7,110</td>
<td style="text-align: right;">-1.52%</td>
<td style="text-align: right;">787,053</td>
<td style="text-align: right;">5,570,363,960</td>
<td style="text-align: right;">811,030</td>
</tr>
<tr>
<td>2018/06/22</td>
<td style="text-align: right;">7,220</td>
<td style="text-align: right;">4.79%</td>
<td style="text-align: right;">1,581,941</td>
<td style="text-align: right;">11,240,161,790</td>
<td style="text-align: right;">823,578</td>
</tr>
<tr>
<td>2018/06/21</td>
<td style="text-align: right;">6,890</td>
<td style="text-align: right;">1.03%</td>
<td style="text-align: right;">1,671,546</td>
<td style="text-align: right;">11,690,257,670</td>
<td style="text-align: right;">785,935</td>
</tr>
<tr>
<td>2018/06/20</td>
<td style="text-align: right;">6,820</td>
<td style="text-align: right;">5.57%</td>
<td style="text-align: right;">1,527,388</td>
<td style="text-align: right;">10,330,053,370</td>
<td style="text-align: right;">777,950</td>
</tr>
<tr>
<td>2018/06/19</td>
<td style="text-align: right;">6,460</td>
<td style="text-align: right;">-2.42%</td>
<td style="text-align: right;">919,025</td>
<td style="text-align: right;">6,030,748,810</td>
<td style="text-align: right;">736,886</td>
</tr>
<tr>
<td>2018/06/18</td>
<td style="text-align: right;">6,620</td>
<td style="text-align: right;">-3.22%</td>
<td style="text-align: right;">1,567,598</td>
<td style="text-align: right;">10,221,676,410</td>
<td style="text-align: right;">755,137</td>
</tr>
<tr>
<td>2018/06/15</td>
<td style="text-align: right;">6,840</td>
<td style="text-align: right;">1.33%</td>
<td style="text-align: right;">1,566,355</td>
<td style="text-align: right;">10,736,684,480</td>
<td style="text-align: right;">780,232</td>
</tr>
<tr>
<td>
2018/06/14
* 1M VWAP period begins.
</td>
<td style="text-align: right;">6,750</td>
<td style="text-align: right;">-2.88%</td>
<td style="text-align: right;">1,708,987</td>
<td style="text-align: right;">11,658,913,250</td>
<td style="text-align: right;">769,966</td>
</tr>
<tr><td colspan="6">Source: KRX</td></tr>
</tbody></table>

July 16 was the the day for the first round of price determination for Jcontentree Corp (036420 KS).
Event timeline

1st round of offering price determination
July 16, 2018


Ex-rights date
July 18, 2018


Subscription rights trade period (5 trading days)
Aug 22 - 28, 2018


Final offering price determination
Sep 3, 2018


Listing
Sep 28, 2018

Source: DART
The company hasn't yet submitted a regulatory filing about the price, but we can do calculations ourselves according to the below formulas.
Offering price determination

Reference price ①
Min [July 16 VWAP, (arithmetic avg. of July 16 VWAP, 1W VWAP ending July 16 and 1M VWAP ending July 16)]


Offering price ①
[Reference price ① × (1 - discount rate (20%))] / [1+(capital increase rate (26.2998753%) × discount rate (20%))]


Reference price ②
Min [Sep 3 VWAP, (arithmetic avg. of Sep 3 VWAP and 1W VWAP ending Sep 3)]


Offering price ②
[Reference price ② × (1 - discount rate (20%))]


Final offering price
Min [offering price ① and offering price ②]


→
But if the above-mentioned offering price is lower than VWAP on Aug 30 - Sep 3 with 40% discount (VWAP on Aug 30 - Sep 3 x 60%), then (VWAP on Aug 30 - Sep 3 x 60%) will be a new final offering price.


'Final final' offering price
MAX [MIN[offering price ① and offering price ②], (VWAP on Aug 30 - Sep 3 x 60%)]

Source: DART
Thanks to the recent price surge over the past 5 trading days (up 9.87%), first round offering price was priced at ₩5,420, which is meaningfully higher than initially projected. So, it is now guaranteed that the offering price will be at least as low as ₩5,420 unless something radical happens during Aug 30 - Sep 3.
First round pricing calculations

1M VWAP ending July 16
6,940
A


1W VWAP ending July 16
7,050
B


1D VWAP on July 16
7,386
C


Arithmetic avg. of A, B, C
7,125
D


Reference price ①
7,125
E = Min [C, D]


Discount rate
20%
F


Capital increase rate
26.2998753%
G


Offering price ①

5,420
* Rounded to the nearest ten

[E × (1 - F)] / [1 + (G × F)]

Source: Sanghyun Park


Date
Closing price (₩)
Daily Δ
Trade volume
Trade value (₩)
Market cap (₩ mil)



2018/07/16
* 1M VWAP period ends.
* 1W VWAP period ends.

7,350
1.52%
2,069,593
15,285,031,530
838,407


2018/07/13
7,240
1.97%
1,932,261
13,992,307,260
825,859


2018/07/12
7,100
6.77%
4,187,089
29,377,896,740
809,890


2018/07/11
6,650
-0.60%
680,182
4,519,396,620
758,559



2018/07/10
* 1W VWAP period begins.

6,690
0.00%
1,581,666
10,500,790,290
763,121


2018/07/09
6,690
-4.70%
2,244,410
15,218,074,760
763,121


2018/07/06
7,020
-3.04%
3,136,818
21,621,004,160
800,764


2018/07/05
7,240
2.26%
1,849,464
13,335,087,450
825,859


2018/07/04
7,080
0.57%
2,205,079
15,646,107,540
807,608


2018/07/03
7,040
5.23%
7,163,564
50,487,988,350
803,046


2018/07/02
6,690
-4.70%
6,602,542
44,280,332,120
763,121


2018/06/29
7,020
-0.43%
993,304
6,918,282,740
800,764


2018/06/28
7,050
0.43%
521,994
3,700,658,680
804,186


2018/06/27
7,020
-2.36%
787,490
5,635,540,170
800,764


2018/06/26
7,190
1.13%
894,186
6,360,569,550
820,156


2018/06/25
7,110
-1.52%
787,053
5,570,363,960
811,030


2018/06/22
7,220
4.79%
1,581,941
11,240,161,790
823,578


2018/06/21
6,890
1.03%
1,671,546
11,690,257,670
785,935


2018/06/20
6,820
5.57%
1,527,388
10,330,053,370
777,950


2018/06/19
6,460
-2.42%
919,025
6,030,748,810
736,886


2018/06/18
6,620
-3.22%
1,567,598
10,221,676,410
755,137


2018/06/15
6,840
1.33%
1,566,355
10,736,684,480
780,232



2018/06/14
* 1M VWAP period begins.

6,750
-2.88%
1,708,987
11,658,913,250
769,966

Source: KRX


Jcontentree Rights Offering: First Round Pricing Summary