Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Douglas Research Advisory

Equity Bottom-Up

<ul>
<li>In this insight, we discuss a pair trade between Hanwha Aerospace (012450 KS) (go long) and Hanwha Ocean (042660 KS) (go short).</li>
<li>Hanwha Ocean faces bigger overhang risk of KDB continuing to sell additional shares of the company as compared to Hanwha Aerospace's rights offering shares dilution risk. </li>
<li>Hanwha Aerospace/Hanwha Ocean price ratio (5 year period) is near the 2 standard deviation (STD) mark which could suggest a reversion to the mean.</li>
</ul>


In this insight, we discuss a pair trade between Hanwha Aerospace (012450 KS) (go long) and Hanwha Ocean (042660 KS) (go short).
Hanwha Ocean faces bigger overhang risk of KDB continuing to sell additional shares of the company as compared to Hanwha Aerospace's rights offering shares dilution risk. 
Hanwha Aerospace/Hanwha Ocean price ratio (5 year period) is near the 2 standard deviation (STD) mark which could suggest a reversion to the mean.


A Pair Trade of Hanwha Aerospace and Hanwha Ocean

Event-Driven

<ul>
<li>Korea Development Bank (KDB) is capitalizing on the huge share price appreciation of Hanwha Ocean (042660 KS) to sell some of its stake in the company through block deal sales.</li>
<li>KDB plans to sell its 19.5% stake in Hanwha Ocean. However, the initial block deal sale will be for about 13 million shares (4.3% of outstanding shares). </li>
<li><em><strong>Hanwha Ocean's lofty valuations are difficult to justify. As KDB is getting ready to sell more shares,  this could cause further overhang on its shares over the next 3-6 months.  </strong></em></li>
</ul>


Korea Development Bank (KDB) is capitalizing on the huge share price appreciation of Hanwha Ocean (042660 KS) to sell some of its stake in the company through block deal sales.
KDB plans to sell its 19.5% stake in Hanwha Ocean. However, the initial block deal sale will be for about 13 million shares (4.3% of outstanding shares). 
Hanwha Ocean's lofty valuations are difficult to justify. As KDB is getting ready to sell more shares,  this could cause further overhang on its shares over the next 3-6 months.  


Overhang on KDB's Sell Down of Its 19.5% Stake in Hanwha Ocean

<ul>
<li>In the Korean stock market, one of the biggest positive catalysts of Donald Trump becoming the next United States President has been the shipbuilding sector.</li>
<li>About 20 years, the United States had a dominant naval superiority versus China. That is no longer the case. </li>
<li>There is a likely scenario of the US Navy increasingly outsourcing the construction and after-service of its fleet to Korean companies such as Hanwha Ocean and HD Hyundai Heavy Industries.</li>
</ul>


In the Korean stock market, one of the biggest positive catalysts of Donald Trump becoming the next United States President has been the shipbuilding sector.
About 20 years, the United States had a dominant naval superiority versus China. That is no longer the case. 
There is a likely scenario of the US Navy increasingly outsourcing the construction and after-service of its fleet to Korean companies such as Hanwha Ocean and HD Hyundai Heavy Industries.


Trump Catalyst - Korean Shipbuilding Sector

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

<ul>
<li>Korea Development Bank is looking to sell 13m shares of <a href="https://www.smartkarma.com/entities/hanwha-ocean-co-ltd" target="_blank" data-smartkarma-citation="entities:12531:1" rel="noopener">Hanwha Ocean (042660 KS)</a>. That is US$740m at the top end of the marketed range and 4x ADV. </li>
<li>Following the sale, Korea Development Bank will still own over 15% of the company and that will be an overhang for the stock. Plus the stock appears wildly overvalued.</li>
<li>There will be limited buying from passive trackers at the time of the placement with bigger passive flows coming through in June and August.</li>
</ul>


Korea Development Bank is looking to sell 13m shares of Hanwha Ocean (042660 KS). That is US$740m at the top end of the marketed range and 4x ADV. 
Following the sale, Korea Development Bank will still own over 15% of the company and that will be an overhang for the stock. Plus the stock appears wildly overvalued.
There will be limited buying from passive trackers at the time of the placement with bigger passive flows coming through in June and August.


Hanwha Ocean (042660 KS) Placement: Index Implications; Stock Appears Wildly Overvalued

Korea / Special Situations, Clepsydra Capital

Sanghyun Park

Korea / Special Situations

Korea / Special Sits, Pairs, Index Rebalancing

Clepsydra Capital

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

Equity Capital Markets

<ul>
<li>KDB sells 4.3% of total shares, offloading about one fifth of its holdings. The price range was 81,265–81,710 won, at an 8.51–9.00% discount, totaling 1.056–1.062 trillion won.</li>
<li>With more float and passive buying (KOSPI 200) potential, plus shipbuilding momentum, the stock’s pullback likely won’t exceed today’s discount — it might be worth taking a swing.</li>
<li>There’s buzz KDB might sell its HMM stake through block trades, like Hanwha Ocean. However, with HMM’s cash reserves, a tender offer seems more likely to drive stock action instead.</li>
</ul>


KDB sells 4.3% of total shares, offloading about one fifth of its holdings. The price range was 81,265–81,710 won, at an 8.51–9.00% discount, totaling 1.056–1.062 trillion won.
With more float and passive buying (KOSPI 200) potential, plus shipbuilding momentum, the stock’s pullback likely won’t exceed today’s discount — it might be worth taking a swing.
There’s buzz KDB might sell its HMM stake through block trades, like Hanwha Ocean. However, with HMM’s cash reserves, a tender offer seems more likely to drive stock action instead.


KDB's Hanwha Ocean Block Deal: Worth Taking a Swing

South Korea

Hanwha Ocean Co., Ltd. operates as a shipbuilding and offshore company. The Company provides floating structure construction, steel wire drying, commercial vessels, specialty vessels, gas carrier, tanker, containership, ro ro, bulk carrier, submarine, warship, auxiliaries, cruise ships, and ferries manufacturing services. Hanwha Ocean also offers onshore plants services.

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Hanwha Ocean (042660 KS)

A Pair Trade of Hanwha Aerospace and Hanwha Ocean

In this insight, we discuss a pair trade between Hanwha Aerospace (012450 KS) (go long) and Hanwha Ocean (042660 KS) (go short).

Douglas Kim

Overhang on KDB's Sell Down of Its 19.5% Stake in Hanwha Ocean

Hanwha Ocean's lofty valuations are difficult to justify. As KDB is getting ready to sell more shares, this could cause further overhang on its...

Douglas Kim

Trump Catalyst - Korean Shipbuilding Sector

KDB is pushing for the sale of some of its Hanwha Ocean shares (13 million initially, more later on) through block deal sale which is likely to...

Douglas Kim