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.

Event-Driven

<p>We all know that Doosan Infracore's 0.6895026 portions (Investment Division) must move in proportion to the Doosan Heavy share price at a ratio of 0.4719929.</p><p>That is, 0.6895026 Infracore shares must be equal in value to 0.4719929 Heavy shares.</p><div><div><table class="table table-striped">
<colgroup>
<col width="200">
<col width="200">
</colgroup>
<tbody>
<tr><td colspan="2" style="width: 726.008px;" data-sheets-value='{"1":2,"2":"Swap ratio"}'>Doosan Infracore split ratio</td></tr>
<tr>
<td style="width: 488.693px;" data-sheets-value='{"1":2,"2":"Doosan Infracore split ratio"}'>Business Division</td>
<td style="text-align: right; width: 216.321px;" data-sheets-value='{"1":3,"3":0.6895026}' data-sheets-numberformat='{"1":2,"2":"#,##0.0000000","3":1}'>0.3104974</td>
</tr>
<tr>
<td style="width: 488.693px;" data-sheets-value='{"1":2,"2":"Swap ratio with Doosan Heavy"}'><strong>Investment Division (owning a 51.05% stake in Doosan Bobcat)</strong></td>
<td style="text-align: right; width: 216.321px;" data-sheets-value='{"1":3,"3":0.47342703366485994}' data-sheets-numberformat='{"1":2,"2":"#,##0.0000000","3":1}' data-sheets-formula="=R[-2]C[0]*R[-1]C[0]"><strong>0.6895026</strong></td>
</tr>
<tr>
<td style="width: 488.693px;">Merger ratio between Doosan Infracore Investment Division &amp; Doosan Heavy Industries</td>
<td style="text-align: right; width: 216.321px;">0.6866211</td>
</tr>
<tr>
<td style="width: 488.693px;">
<p><strong>Final swap ratio for each share of Doosan Infracore</strong></p>
<p><strong>: Split ratio (0.6895026) × Merger ratio (0.6866211)</strong></p>
</td>
<td style="text-align: right; width: 216.321px;"><strong>0.4719929</strong></td>
</tr>
<tr><td colspan="2" style="width: 726.008px;" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table></div></div><div>
<p>Now, the tricky part is the value of Infracore's Business Division.</p>
<p>The split ratio indicates that 0.3104974 of the Infracore share price should be the worth of the Business Division.</p>
<p>Then, if you subtract the Infracore share price by 0.4719929 of the Heavy share price, you should have an outcome equal to 0.3104974 of the Infracore share price.</p>
<p>But there is a huge disparity now. 0.3104974 of the Infracore share price is currently ₩4,704, whereas the current market value (the Infracore share price minus 0.4719929 of the Heavy share price) is ₩2,831.</p>
<p><strong>So, it is like Infracore's Business Division is currently trading at a 39.82% discount to the nominal (or theoretical) value.</strong></p>
<table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr><td colspan="2" rowspan="1" style="width: 726.008px;" data-sheets-value='{"1":2,"2":"Value calculations"}'>Value calculations</td></tr>
<tr>
<td style="width: 352.5px;" data-sheets-value='{"1":2,"2":"Dooan Heavy share price"}'>Doosan Heavy share price</td>
<td style="text-align: right; width: 352.514px;" data-sheets-value='{"1":3,"3":26100}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-formula="=R[-4]C[-6]">₩26,100</td>
</tr>
<tr>
<td style="width: 352.5px;" data-sheets-value='{"1":2,"2":"0.4719929 of Doosan Heavy share price"}'> - 0.4719929 of Doosan Heavy share price</td>
<td style="text-align: right; width: 352.514px;" data-sheets-value='{"1":3,"3":12319.01469}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-formula="=R[-1]C[0]*R[-46]C[-4]">₩12,319</td>
</tr>
<tr>
<td style="width: 352.5px;" data-sheets-value='{"1":2,"2":"Doosan Infracore share price"}'>Doosan Infracore share price</td>
<td style="text-align: right; width: 352.514px;" data-sheets-value='{"1":3,"3":15150}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-formula="=R[-6]C[-5]">₩15,150</td>
</tr>
<tr>
<td style="width: 352.5px;" data-sheets-value='{"1":2,"2":"Minus 0.4719929 of Doosan Heavy share price"}'> - Minus 0.4719929 of Doosan Heavy share price</td>
<td style="text-align: right; width: 352.514px;" data-sheets-value='{"1":3,"3":2830.98531}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-formula="=R[-1]C[0]-R[-2]C[0]">₩2,831</td>
</tr>
<tr>
<td style="width: 352.5px;" data-sheets-value='{"1":2,"2":"0.3104974 of Doosan Infracore share price"}'> - 0.3104974 of Doosan Infracore share price</td>
<td style="text-align: right; width: 352.514px;" data-sheets-value='{"1":3,"3":4704.03561}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-formula="=R[-2]C[0]*R[-49]C[-3]">₩4,704</td>
</tr>
<tr>
<td style="width: 352.5px;" data-sheets-value='{"1":2,"2":"Premium"}'><strong>Discount on 0.3104974 of Doosan Infracore share price</strong></td>
<td style="text-align: right; width: 352.514px;" data-sheets-value='{"1":3,"3":0.3981794474553308}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=R[-9]C[-7]"><strong>39.82%</strong></td>
</tr>
<tr><td colspan="2" rowspan="1" style="width: 726.008px;" data-sheets-value='{"1":2,"2":"Source: KRX &amp; Clepsydra Capital"}'>Source: KRX &amp; Clepsydra Capital</td></tr>
</tbody>
</table>
</div>

We all know that Doosan Infracore's 0.6895026 portions (Investment Division) must move in proportion to the Doosan Heavy share price at a ratio of 0.4719929.That is, 0.6895026 Infracore shares must be equal in value to 0.4719929 Heavy shares.





Doosan Infracore split ratio

Business Division
0.3104974


Investment Division (owning a 51.05% stake in Doosan Bobcat)
0.6895026


Merger ratio between Doosan Infracore Investment Division &amp; Doosan Heavy Industries
0.6866211



Final swap ratio for each share of Doosan Infracore
: Split ratio (0.6895026) × Merger ratio (0.6866211)

0.4719929

Source: DART


Now, the tricky part is the value of Infracore's Business Division.
The split ratio indicates that 0.3104974 of the Infracore share price should be the worth of the Business Division.
Then, if you subtract the Infracore share price by 0.4719929 of the Heavy share price, you should have an outcome equal to 0.3104974 of the Infracore share price.
But there is a huge disparity now. 0.3104974 of the Infracore share price is currently ₩4,704, whereas the current market value (the Infracore share price minus 0.4719929 of the Heavy share price) is ₩2,831.
So, it is like Infracore's Business Division is currently trading at a 39.82% discount to the nominal (or theoretical) value.






Value calculations

Doosan Heavy share price
₩26,100


 - 0.4719929 of Doosan Heavy share price
₩12,319


Doosan Infracore share price
₩15,150


 - Minus 0.4719929 of Doosan Heavy share price
₩2,831


 - 0.3104974 of Doosan Infracore share price
₩4,704


Discount on 0.3104974 of Doosan Infracore share price
39.82%

Source: KRX &amp; Clepsydra Capital




How Would We Capitalize on a Massive Discount Present on Doosan Infracore Business Unit?

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Index Rebalance

<div class="content-highlight"><p>In this insight, we provide a first cut at the potential additions and deletions of KOSPI 200 rebalance in November 2021. Although there are about five months left until the next KOSPI 200 rebalance, there are already many investors getting ready for this event. There are also stocks with a combination of improving fundamentals and higher probability of getting included in the KOSPI 200 index rebalance in November that have been big outperformers this year. </p></div><ul>
<li>Among the <strong>additions</strong>, we think some of the top candidates include F&amp;F, Hyundai Autoever, Hansol Chem, <a href="https://www.smartkarma.com/entities/daou-technology-inc" target="_blank" data-smartkarma-citation="entities:4411:1" rel="noopener">Daou Technology (023590 KS), </a><a href="https://www.smartkarma.com/entities/hyundai-construction-equipment-corporation" target="_blank" data-smartkarma-citation="entities:24120:1" rel="noopener">Hyundai Construction Equipment (267270 KS)</a>, <a href="https://www.smartkarma.com/entities/hyosung-chemical-corp" target="_blank" data-smartkarma-citation="entities:27752:1" rel="noopener">Hyosung Chemical Corp (298000 KS)</a>, <a href="https://www.smartkarma.com/entities/seah-besteel-corp" target="_blank" data-smartkarma-citation="entities:11760:1" rel="noopener">Seah Besteel (001430 KS)</a>, <a href="https://www.smartkarma.com/entities/hanmi-semiconductor-co-ltd" target="_blank" data-smartkarma-citation="entities:15587:1" rel="noopener">Hanmi Semiconductor (042700 KS)</a> </li>
<li>Among the <strong>deletions</strong>, we think that some of the top candidates include F&amp;F Holdings, Nexen Tire, H.S. Enterprise, Hyundai Green Food, and LX International. </li>
</ul><div class="content-highlight">
<p>Among the 29 companies we highlighted as the potential additions, six of them had their operating profit increasing by more than 100% YoY in 1Q 2021 which include the following:</p>
<ul>
<li><a href="https://www.smartkarma.com/entities/daou-technology-inc" target="_blank" data-smartkarma-citation="entities:4411:1" rel="noopener">Daou Technology (023590 KS)</a></li>
<li>
<a href="https://www.smartkarma.com/entities/hyundai-construction-equipment-corporation" target="_blank" data-smartkarma-citation="entities:24120:1" rel="noopener">Hyundai Construction Equipment (267270 KS)</a> </li>
<li>
<a href="https://www.smartkarma.com/entities/hyosung-chemical-corp" target="_blank" data-smartkarma-citation="entities:27752:1" rel="noopener">Hyosung Chemical Corp (298000 KS)</a> </li>
<li>KCC Glass (344820 KS)</li>
<li>
<a href="https://www.smartkarma.com/entities/seah-besteel-corp" target="_blank" data-smartkarma-citation="entities:11760:1" rel="noopener">Seah Besteel (001430 KS)</a> </li>
<li>
<a href="https://www.smartkarma.com/entities/hanmi-semiconductor-co-ltd" target="_blank" data-smartkarma-citation="entities:15587:1" rel="noopener">Hanmi Semiconductor (042700 KS)</a> </li>
</ul>
<p>These six stocks have had an outstanding share price performances this year as their share prices are up on average 97.1% YTD. These stocks have both a combination of improving fundamentals as well as the likelihood of getting included in KOSPI 200 index, resulting in many investors bidding up their shares. </p>
</div>

In this insight, we provide a first cut at the potential additions and deletions of KOSPI 200 rebalance in November 2021. Although there are about five months left until the next KOSPI 200 rebalance, there are already many investors getting ready for this event. There are also stocks with a combination of improving fundamentals and higher probability of getting included in the KOSPI 200 index rebalance in November that have been big outperformers this year. 
Among the additions, we think some of the top candidates include F&amp;F, Hyundai Autoever, Hansol Chem, Daou Technology (023590 KS), Hyundai Construction Equipment (267270 KS), Hyosung Chemical Corp (298000 KS), Seah Besteel (001430 KS), Hanmi Semiconductor (042700 KS) 
Among the deletions, we think that some of the top candidates include F&amp;F Holdings, Nexen Tire, H.S. Enterprise, Hyundai Green Food, and LX International. 

Among the 29 companies we highlighted as the potential additions, six of them had their operating profit increasing by more than 100% YoY in 1Q 2021 which include the following:

Daou Technology (023590 KS)

Hyundai Construction Equipment (267270 KS) 

Hyosung Chemical Corp (298000 KS) 
KCC Glass (344820 KS)

Seah Besteel (001430 KS) 

Hanmi Semiconductor (042700 KS) 

These six stocks have had an outstanding share price performances this year as their share prices are up on average 97.1% YTD. These stocks have both a combination of improving fundamentals as well as the likelihood of getting included in KOSPI 200 index, resulting in many investors bidding up their shares. 


Looking Ahead to the KOSPI 200 Rebalance in November 2021

<p>On 19 March, <a href="https://www.smartkarma.com/entities/doosan-infracore-co-ltd" target="_blank" data-smartkarma-citation="entities:3982:1" rel="noopener">Doosan Infracore (042670 KS)</a> announced that it will split the operating division (surviving company) and the investment division (Newco company that is being split off). The split off Newco will then be merged with <a href="https://www.smartkarma.com/entities/doosan-heavy-industries-construction" target="_blank" data-smartkarma-citation="entities:7389:1" rel="noopener">Doosan Heavy Industries &amp; Construction (034020 KS)</a>. </p><p><strong>Need to Repay Doosan Infracore Shorts - </strong>As of 18 March, there were 12.56 million shares shorts outstanding for Doosan Infracore, representing 3.4% of total outstanding shares. At the current price of 9,880 won, this represents 124 billion won. There were 61 million shares of Doosan Infracore that were traded on Monday, 21 March and probably a good chunk of these shorted shares were covered. According to Korean regulations, prior to the Newco being formed, the investors that were shorted on the company need to repay them and this was one of the main reasons why Doosan Infracore's shares jumped 21% on Monday. </p><div class="content-highlight"><p><em>The Insight has been marked Bullish since we expect the split off and merger of Doosan Infracore's investment assets to DHIC is likely to result in a higher re-rating of the company's core operating business (construction equipment). There are also signs that the overseas construction business is rebounding in China, which should have a positive impact on Doosan Infracore. In addition, the creation of the Newco (and the getting rid of the previous company's shareholders' list) results in the need for the Doosan Infracore's shorts to cover. </em></p></div>

On 19 March, Doosan Infracore (042670 KS) announced that it will split the operating division (surviving company) and the investment division (Newco company that is being split off). The split off Newco will then be merged with Doosan Heavy Industries &amp; Construction (034020 KS). Need to Repay Doosan Infracore Shorts - As of 18 March, there were 12.56 million shares shorts outstanding for Doosan Infracore, representing 3.4% of total outstanding shares. At the current price of 9,880 won, this represents 124 billion won. There were 61 million shares of Doosan Infracore that were traded on Monday, 21 March and probably a good chunk of these shorted shares were covered. According to Korean regulations, prior to the Newco being formed, the investors that were shorted on the company need to repay them and this was one of the main reasons why Doosan Infracore's shares jumped 21% on Monday. The Insight has been marked Bullish since we expect the split off and merger of Doosan Infracore's investment assets to DHIC is likely to result in a higher re-rating of the company's core operating business (construction equipment). There are also signs that the overseas construction business is rebounding in China, which should have a positive impact on Doosan Infracore. In addition, the creation of the Newco (and the getting rid of the previous company's shareholders' list) results in the need for the Doosan Infracore's shorts to cover. 

Doosan Infracore: Investco Split Off & Merger Ratio Announced

Hyundai Construction Equipment / Event-Driven

Hyundai Construction Equipment (267270 KS)

<p>It was announced on 10 December that Hyundai Heavy Industries Group has been selected as the <a href="https://finance.naver.com/news/news_read.nhn?article_id=0004805146&amp;office_id=018&amp;mode=LSS2D&amp;type=0&amp;section_id=101&amp;section_id2=258&amp;section_id3=&amp;date=20201210&amp;page=2" target="_blank" rel="noopener">preferred bidder</a> to acquire the 35.4% controlling stake of <a href="https://www.smartkarma.com/entities/doosan-infracore-co-ltd" target="_blank" data-smartkarma-citation="entities:3982:1" rel="noopener">Doosan Infracore (042670 KS), </a>held by <a href="https://www.smartkarma.com/entities/doosan-heavy-industries-construction" target="_blank" data-smartkarma-citation="entities:7389:1" rel="noopener">Doosan Heavy Industries &amp; Construction (034020 KS)</a>. Doosan Infracore currently has a market cap of 1.9 trillion won. Hence, a 35.4% stake in the company would be worth 663 billion won. It has been reported that the consortium led by Hyundai Heavy Industries and KDB Investment bid about 900 billion won for Doosan Infracore. Hence, the potential acquisition price would be about 36% premium to current price of Doosan Infracore (8,670 won). The final acquisition price is not yet determined so this is subject to change. </p><div class="content-highlight"><p>In our view, there may be a bigger positive impact on Hyundai Construction Equipment if the HHI Group ends up acquiring Doosan Infracore. There are two major reasons. First, there are expected to some synergies between Doosan Infracore and Hyundai Construction Equipment that could have a bigger positive impact on Hyundai Construction Equipment. Second, the valuation gap between Doosan Infracore and Hyundai Construction Equipment may be reduced.</p></div>

It was announced on 10 December that Hyundai Heavy Industries Group has been selected as the preferred bidder to acquire the 35.4% controlling stake of Doosan Infracore (042670 KS), held by Doosan Heavy Industries &amp; Construction (034020 KS). Doosan Infracore currently has a market cap of 1.9 trillion won. Hence, a 35.4% stake in the company would be worth 663 billion won. It has been reported that the consortium led by Hyundai Heavy Industries and KDB Investment bid about 900 billion won for Doosan Infracore. Hence, the potential acquisition price would be about 36% premium to current price of Doosan Infracore (8,670 won). The final acquisition price is not yet determined so this is subject to change. In our view, there may be a bigger positive impact on Hyundai Construction Equipment if the HHI Group ends up acquiring Doosan Infracore. There are two major reasons. First, there are expected to some synergies between Doosan Infracore and Hyundai Construction Equipment that could have a bigger positive impact on Hyundai Construction Equipment. Second, the valuation gap between Doosan Infracore and Hyundai Construction Equipment may be reduced.

Korea M&A Spotlight: HHI Group Selected As Preferred Bidder for Doosan Infracore

<ul>
<li>
<a href="https://www.smartkarma.com/entities/24120" target="_blank" data-smartkarma-citation="entities:24120:1">Hyundai Construction Equipment (267270 KS)</a> announced 1:1 bonus issue last Friday. That is, the company will offer a total 9,824,498 new shares to the existing shareholders at a 1:1 ratio.</li>
<li>This event wouldn't be a pure arb play. However, you are willing to take a little bit of risk by betting on 'general tendencies', then you will find an interesting trading point. One of the general tendencies that we may want to look into is that the price has often given a 3~8% yield on the ex-rights day.</li>
<li>Hyundai CE's previous bonus issue (last November) gave a 4~6% trading yield. Trade set-up is clear and straightforward. You buy Hyundai CE shares on the day prior to the ex-rights day and sell your shares AND short another Hyundai CE shares (for your bonus shares) to fix your yield on the ex-rights day.</li>
</ul>



Hyundai Construction Equipment (267270 KS) announced 1:1 bonus issue last Friday. That is, the company will offer a total 9,824,498 new shares to the existing shareholders at a 1:1 ratio.
This event wouldn't be a pure arb play. However, you are willing to take a little bit of risk by betting on 'general tendencies', then you will find an interesting trading point. One of the general tendencies that we may want to look into is that the price has often given a 3~8% yield on the ex-rights day.
Hyundai CE's previous bonus issue (last November) gave a 4~6% trading yield. Trade set-up is clear and straightforward. You buy Hyundai CE shares on the day prior to the ex-rights day and sell your shares AND short another Hyundai CE shares (for your bonus shares) to fix your yield on the ex-rights day.


Hyundai Construction Equipment Bonus Issue: Potentially a 4~6% Yield on Ex-Rights Day

South Korea

Hyundai Construction Equipment Corporation manufactures construction equipment. Hyundai Construction Equipment Corporation is located in South Korea. Hyundai Construction Equipment Corporation operates independently of Hyundai Heavy Industries Co., Ltd. as of April 1, 2017.

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Hyundai Construction Equipment (267270 KS)

How Would We Capitalize on a Massive Discount Present on Doosan Infracore Business Unit?

This post discusses how I would trade on a massive discount currently sitting on Doosan Infracore's Business Unit amid the ongoing carve-out process.

Sanghyun Park

Looking Ahead to the KOSPI 200 Rebalance in November 2021

In this insight, we provide a first cut at the potential additions and deletions of KOSPI 200 rebalance in November 2021.

Douglas Kim

Doosan Infracore: Investco Split Off & Merger Ratio Announced

We expect the split off and merger of Doosan Infracore's investment assets to DHIC is likely to result in a higher re-rating of the company's core...

Douglas Kim

Korea M&A Spotlight: HHI Group Selected As Preferred Bidder for Doosan Infracore

It was announced on 10 December that Hyundai Heavy Industries Group has been selected as the preferred bidder to acquire the 35.4% controlling...

Douglas Kim

Hyundai Construction Equipment Bonus Issue: Potentially a 4~6% Yield on Ex-Rights Day

Hyundai Construction Equipment (267270 KS) announced 1:1 bonus issue last Friday. That is, the company will offer a total 9,824,498 new shares to...

Sanghyun Park

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