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

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Samsung Heavy Situation: Discussing 3 Key Issues at This Point

Samsung Heavy Industries: A Capital Reduction Followed by 1 Trillion Won in Rights Offering

Samsung Heavy's Unusual Preannouncement of Rights Offer: Pave the Path for Massive Arb Trades?

Clepsydra Capital

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

Event-Driven

<div>
<p>Samsung Heavy Industries has entered a stock trading suspension from July 23 to August 9 due to the 5 to 1 capital reduction without refund.</p>
<div class="content-highlight"><p><strong>But this one is a par-value capital reduction without any refund. Only the par-value will be down from ₩5,000 to ₩1,000. So, the number of outstanding shares remains unchanged.</strong></p></div>
</div><div>
<table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
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<tbody>
<tr>
<td style="width: 227.273px;" data-sheets-value='{"1":2,"2":"Capital reduction "}'>Capital reduction details</td>
<td style="text-align: center; width: 227.273px;" data-sheets-value='{"1":2,"2":"Current"}'>Previous</td>
<td style="text-align: center; width: 227.273px;" data-sheets-value='{"1":2,"2":"After capital reduction"}'>After capital reduction</td>
</tr>
<tr>
<td style="width: 227.273px;" data-sheets-value='{"1":2,"2":"Ordinary shares"}'><strong>Ordinary shares</strong></td>
<td style="text-align: center; width: 227.273px;" data-sheets-value='{"1":3,"3":630000000}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'><strong>630,000,000</strong></td>
<td style="text-align: center; width: 227.273px;" data-sheets-value='{"1":3,"3":630000000}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'><strong> 630,000,000</strong></td>
</tr>
<tr>
<td style="width: 227.273px;" data-sheets-value='{"1":2,"2":"Par value"}'>Par value</td>
<td style="text-align: center; width: 227.273px;" data-sheets-value='{"1":3,"3":5000}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}'>₩5,000</td>
<td style="text-align: center; width: 227.273px;" data-sheets-value='{"1":3,"3":1000}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}'>₩1,000</td>
</tr>
<tr>
<td style="width: 227.273px;" data-sheets-value='{"1":2,"2":"Capital"}'>Capital</td>
<td style="text-align: center; width: 227.273px;" data-sheets-value='{"1":3,"3":3150.574225}' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-formula="=R[2]C[-3]/1000000000">3,150.6</td>
<td style="text-align: center; width: 227.273px;" data-sheets-value='{"1":3,"3":630.114845}' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-formula="=R[2]C[-3]/1000000000">630.1</td>
</tr>
<tr>
<td style="width: 227.273px;" data-sheets-value='{"1":2,"2":"Trade suspension"}'><strong>Trade suspension</strong></td>
<td colspan="2" style="text-align: center; width: 475.455px;" data-sheets-value='{"1":2,"2":"2021. 07. 23 ~ 08. 09"}'><strong>2021. 07. 23 ~ 08. 09</strong></td>
</tr>
<tr><td colspan="3" style="width: 723.636px;">Source: DART</td></tr>
</tbody>
</table>
<div id="ember3630" data-message-id="386335"><div><div id="ember3631"><div><div><div>
<h2><strong>Why doing it?</strong></h2>
<p>Reducing the par value but without any refund simply moves capital to earnings surplus so that Samsung Heavy can avoid capital impairment. But the total shares remain the same.</p>
</div></div></div></div></div></div>
<div id="ember3641" data-message-id="386337"><div id="ember3642"><div><div>
<div class="content-highlight"><p>Capital impairment is when the company lost its asset, so the asset is lower than the stock of a company. One way to avoid capital impairment is a reduction of capital without any compensation. (Wikipedia)</p></div>
<p><strong>Another reason Samsung Heavy is making capital reduction is that the current law doesn't allow a company to issue new shares at a price below the par value. If it has to offer new shares below the par value, it will have to obtain special approval from the court.</strong></p>
<p><strong>Samsung Heavy's last close price is ₩6,540, and the previous par value is ₩5,000. It'd be very tight to offer new shares above ₩5,000, given the usual 20% discount. So, it reduces the par value ahead of new share issuance, which the local street expects to hit the market around November.</strong></p>
</div></div></div></div>
</div>


Samsung Heavy Industries has entered a stock trading suspension from July 23 to August 9 due to the 5 to 1 capital reduction without refund.
But this one is a par-value capital reduction without any refund. Only the par-value will be down from ₩5,000 to ₩1,000. So, the number of outstanding shares remains unchanged.









Capital reduction details
Previous
After capital reduction


Ordinary shares
630,000,000
 630,000,000


Par value
₩5,000
₩1,000


Capital
3,150.6
630.1


Trade suspension
2021. 07. 23 ~ 08. 09

Source: DART



Why doing it?
Reducing the par value but without any refund simply moves capital to earnings surplus so that Samsung Heavy can avoid capital impairment. But the total shares remain the same.


Capital impairment is when the company lost its asset, so the asset is lower than the stock of a company. One way to avoid capital impairment is a reduction of capital without any compensation. (Wikipedia)
Another reason Samsung Heavy is making capital reduction is that the current law doesn't allow a company to issue new shares at a price below the par value. If it has to offer new shares below the par value, it will have to obtain special approval from the court.
Samsung Heavy's last close price is ₩6,540, and the previous par value is ₩5,000. It'd be very tight to offer new shares above ₩5,000, given the usual 20% discount. So, it reduces the par value ahead of new share issuance, which the local street expects to hit the market around November.



Samsung Heavy Industries Passive Flow Trade on Relisting, August 10