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

<h2>Event overview</h2><p>We have another stock swap event in Korea. SK Inc (SK Holdings) merges with SK Materials. SK Inc will be a surviving entity, and SK Materials will be dissolved. <strong>So yes, this is a nearly pure arb opportunity. I need to stress the word "Nearly" here, meaning that it isn't a 100% risk-free arb. But the only risk here is cancellation, which will be triggered by the stock purchase ceiling amount of ₩800.0B.</strong></p><table class="table table-striped">
<colgroup>
<col width="200">
<col width="200">
</colgroup>
<tbody>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Swap overview"}'>Swap overview</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Type"}'>Type</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Stock swap"}'>Stock swap</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Acquirer"}'>Acquirer</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SK Inc"}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'><a href="https://www.smartkarma.com/entities/sk-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:393:1" rel="noopener">SK Inc (034730 KS)</a></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Target company"}'>Target company</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SK Materials Co Ltd"}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'><a href="https://www.smartkarma.com/entities/oci-materials-co-ltd" target="_blank" data-smartkarma-citation="entities:19390:1" rel="noopener">SK Materials (036490 KS)</a></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap price for SK Inc"}' data-sheets-formula='="Swap price for "&amp;R[-6]C[1]'><strong>Swap price for SK Inc</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":264076}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}'><strong>₩264,076</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap price for SK Materials Co Ltd"}' data-sheets-formula='="Swap price for "&amp;R[-4]C[1]'><strong>Swap price for SK Materials</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":416670}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}'><strong>₩416,670</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap ratio"}'><strong>Swap ratio</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1.5778412}' data-sheets-numberformat='{"1":2,"2":"#,##0.0000000","3":1}'><strong>1.5778412</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Amount"}'><strong>Stock purchase ceiling amount</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":800}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'><strong>₩0.80T</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Exercise price - SK Inc"}' data-sheets-formula='="Exercise price - "&amp;R[-11]C[1]'>Exercise price - SK Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"N/A"}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}'>N/A</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Exercise price - SK Materials Co Ltd"}' data-sheets-formula='="Exercise price - "&amp;R[-9]C[1]'><strong>Exercise price - SK Materials</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":415751}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}'><strong>₩415,751</strong></td>
</tr>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><p>Below are the swap price calculations for both companies, giving a swap ratio of 1 to 1.5778412. That is, <strong>SK Materials shareholders will receive 1.5778412 shares of SK Inc for each of their SK Materials share.</strong></p><table class="table table-striped">
<colgroup>
<col width="300">
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap prices"}'>Swap prices</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SK Inc"}' data-sheets-formula="=Terms!R[2]C[0]">SK Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SK Materials Co Ltd"}' data-sheets-formula="=Terms!R[5]C[-1]">SK Materials</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Note"}'>Note</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"1-month VWAP (July 20~August 19, 2021)"}'>1-month VWAP (July 20~August 19, 2021)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":270513}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩270,513</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":425992}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩425,992</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"A"}'>A</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"1-week VWAP (August 13~19, 2021)"}'>1-week VWAP (August 13~19, 2021)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":262714}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩262,714</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":420319}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩420,319</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"B"}'>B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"1-day close (August 19, 2021)"}'>1-day close (August 19, 2021)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":259000}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩259,000</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":403700}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩403,700</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"C"}'>C</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap price"}'><strong>Swap price</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":264075.6666666667}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=sum(R[-3]C[0]:R[-1]C[0])/3"><strong>₩264,076</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":416670.3333333333}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=sum(R[-3]C[0]:R[-1]C[0])/3"><strong>₩416,670</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"(A+B+C)/3"}'><strong>(A+B+C)/3</strong></td>
</tr>
<tr><td colspan="4" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART &amp; KRX"}'>Source: DART &amp; KRX</td></tr>
</tbody>
</table><p><strong>This event qualified as a small-scale merger.</strong> It means that the number of newly issued shares being transferred in a merger is less than the 10% threshold of the total issued shares.</p><table class="table table-striped">
<colgroup>
<col width="200">
<col width="200">
</colgroup>
<tbody>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Small scale merger qualification"}'>Small scale merger qualification</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"NPS + Minority shareholders"}'><strong>SK Materials target shares: NPS + Minority shareholders</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.3581000000000001}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=sum(R[-8]C[1]:R[-7]C[1])"><strong>35.81%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Number of shares to swap"}'>Number of shares to swap</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":3776936}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula="=R[-35]C[0]-5179535-1202-1590000">3,776,936</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap ratio"}'>Swap ratio</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1.5778412}' data-sheets-numberformat='{"1":2,"2":"#,##0.0000000","3":1}' data-sheets-formula="=R[-33]C[0]">1.5778412</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Number of shares to be issued"}'><strong>Number of shares to be issued by SK Inc</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":5962879}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'><strong>5,962,879</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - % of SK Inc SO"}'><strong>- % of SK Inc SO</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.08474778041371826}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=R[-1]C[0]/R[-41]C[0]"><strong>8.47% (less than the 10% threshold)</strong></td>
</tr>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><div><div class="content-highlight">
<p><strong>Here are the benefits of a small-scale merger:</strong></p>
<ul>
<li>An acquiring entity (SK Inc) doesn't need shareholder approval, meaning that SK Inc shareholders won't be granted appraisal rights.</li>
<li>Only an acquired entity (SK Materials) needs shareholder approval, meaning that SK Materials shareholders get appraisal rights.</li>
<li>But SK Inc shareholders still get a right to oppose to this merger. If more than 20% of the shareholders oppose, an acquiring company should cancel the merger.</li>
</ul>
</div></div><p>This is the appraisal rights exercise price for SK Materials. As mentioned right above, SK Inc shareholders are not granted stock purchase rights.</p><table class="table table-striped">
<colgroup>
<col width="300">
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Stock purchase rights"}'>Stock purchase rights</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SK Inc"}' data-sheets-formula="=Terms!R[-5]C[0]">SK Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SK Materials Co Ltd"}' data-sheets-formula="=Terms!R[-2]C[-1]">SK Materials</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Note"}'>Note</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"2-month VWAP (June 20~August 19, 2021)"}'>2-month VWAP (June 20~August 19, 2021)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"-"}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>-</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":400942}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=(R[3]C[0]*3)-sum(R[1]C[0]:R[2]C[0])">₩400,942</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"A"}'>A</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"1-month VWAP (July 20~August 19, 2021)"}'>1-month VWAP (July 20~August 19, 2021)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"-"}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>-</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":425992}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩425,992</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"B"}'>B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"1-week VWAP (August 13~19, 2021)"}'>1-week VWAP (August 13~19, 2021)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"-"}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>-</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":420319}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩420,319</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"C"}'>C</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Exercise price"}'><strong>Exercise price</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"-"}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'><strong>-</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":415751}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'><strong>₩415,751</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"(A+B+C)/3"}'><strong>(A+B+C)/3</strong></td>
</tr>
<tr><td colspan="4" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART &amp; KRX"}'>Source: DART &amp; KRX</td></tr>
</tbody>
</table><p><strong>Below is the schedule. And the most important part is that we need to buy SK Materials shares until next Monday (August 23) to become eligible to exercise appraisal rights.</strong> It is important to note that the ex-rights date isn't the deadline for the stock purchase rights eligibility. The ex-rights date in this event is the deadline to become eligible to oppose to the merger.</p><table class="table table-striped">
<colgroup>
<col width="200">
<col width="200">
<col width="200">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Schedule"}' data-sheets-note="Sang Hyun Park: We have to buy shares until BOD+1 to be eligible to receive stock purchase rights. We then have to notify our dissenting opinion until the end of dissenting opinion notice period.">Schedule</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SK Inc"}' data-sheets-formula="=R[-15]C[0]">SK Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SK Materials Co Ltd"}' data-sheets-formula="=R[-12]C[-1]">SK Materials</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Last day to own stock purchase rights"}'><strong>Last day to own stock purchase rights</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"N/A"}'><strong>N/A</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44066}' data-sheets-numberformat='{"1":5,"2":"yyyy. mm. dd","3":1}'><strong>2020. 08. 23</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Ex-rights date"}'><strong>Ex-rights date</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44442}' data-sheets-numberformat='{"1":5,"2":"yyyy. mm. dd","3":1}'><strong>2021. 09. 03</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44442}' data-sheets-numberformat='{"1":5,"2":"yyyy. mm. dd","3":1}'><strong>2021. 09. 03</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Record date of shareholder register"}'>Record date of shareholder register</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44445}' data-sheets-numberformat='{"1":5,"2":"yyyy. mm. dd","3":1}'>2021. 09. 06</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44445}' data-sheets-numberformat='{"1":5,"2":"yyyy. mm. dd","3":1}'>2021. 09. 06</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Dissenting opinion notice"}'><strong>Dissenting opinion notice</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"2021. 09. 06 ~ 09. 23"}'><strong>2021. 09. 06 ~ 09. 23</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"2021. 10. 14 ~ 10. 28"}'><strong>2021. 10. 14 ~ 10. 28</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Shareholder meeting"}'>Shareholder meeting</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"N/A"}'>N/A</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44498}' data-sheets-numberformat='{"1":5,"2":"yyyy. mm. dd","3":1}'>2021. 10. 29</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Stock purchase right exercise"}'><strong>Stock purchase right exercise</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"N/A"}'><strong>N/A</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"2021. 10. 29 ~ 11. 18"}'><strong>2021. 10. 29 ~ 11. 18</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Trade suspension"}'>Trade suspension</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"N/A"}'>N/A</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"2021. 11. 29 ~ 12. 24"}'>2021. 11. 29 ~ 12. 24</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Listing"}'>Listing</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"N/A"}'>N/A</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44557}' data-sheets-numberformat='{"1":5,"2":"yyyy. mm. dd","3":1}'>2021. 12. 27</td>
</tr>
<tr><td colspan="3" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table>

Event overviewWe have another stock swap event in Korea. SK Inc (SK Holdings) merges with SK Materials. SK Inc will be a surviving entity, and SK Materials will be dissolved. So yes, this is a nearly pure arb opportunity. I need to stress the word "Nearly" here, meaning that it isn't a 100% risk-free arb. But the only risk here is cancellation, which will be triggered by the stock purchase ceiling amount of ₩800.0B.





Swap overview

Type
Stock swap


Acquirer
SK Inc (034730 KS)


Target company
SK Materials (036490 KS)


Swap price for SK Inc
₩264,076


Swap price for SK Materials
₩416,670


Swap ratio
1.5778412


Stock purchase ceiling amount
₩0.80T


Exercise price - SK Inc
N/A


Exercise price - SK Materials
₩415,751

Source: DART

Below are the swap price calculations for both companies, giving a swap ratio of 1 to 1.5778412. That is, SK Materials shareholders will receive 1.5778412 shares of SK Inc for each of their SK Materials share.








Swap prices
SK Inc
SK Materials
Note


1-month VWAP (July 20~August 19, 2021)
₩270,513
₩425,992
A


1-week VWAP (August 13~19, 2021)
₩262,714
₩420,319
B


1-day close (August 19, 2021)
₩259,000
₩403,700
C


Swap price
₩264,076
₩416,670
(A+B+C)/3

Source: DART &amp; KRX

This event qualified as a small-scale merger. It means that the number of newly issued shares being transferred in a merger is less than the 10% threshold of the total issued shares.





Small scale merger qualification

SK Materials target shares: NPS + Minority shareholders
35.81%


Number of shares to swap
3,776,936


Swap ratio
1.5778412


Number of shares to be issued by SK Inc
5,962,879


- % of SK Inc SO
8.47% (less than the 10% threshold)

Source: DART


Here are the benefits of a small-scale merger:

An acquiring entity (SK Inc) doesn't need shareholder approval, meaning that SK Inc shareholders won't be granted appraisal rights.
Only an acquired entity (SK Materials) needs shareholder approval, meaning that SK Materials shareholders get appraisal rights.
But SK Inc shareholders still get a right to oppose to this merger. If more than 20% of the shareholders oppose, an acquiring company should cancel the merger.

This is the appraisal rights exercise price for SK Materials. As mentioned right above, SK Inc shareholders are not granted stock purchase rights.








Stock purchase rights
SK Inc
SK Materials
Note


2-month VWAP (June 20~August 19, 2021)
-
₩400,942
A


1-month VWAP (July 20~August 19, 2021)
-
₩425,992
B


1-week VWAP (August 13~19, 2021)
-
₩420,319
C


Exercise price
-
₩415,751
(A+B+C)/3

Source: DART &amp; KRX

Below is the schedule. And the most important part is that we need to buy SK Materials shares until next Monday (August 23) to become eligible to exercise appraisal rights. It is important to note that the ex-rights date isn't the deadline for the stock purchase rights eligibility. The ex-rights date in this event is the deadline to become eligible to oppose to the merger.







Schedule
SK Inc
SK Materials


Last day to own stock purchase rights
N/A
2020. 08. 23


Ex-rights date
2021. 09. 03
2021. 09. 03


Record date of shareholder register
2021. 09. 06
2021. 09. 06


Dissenting opinion notice
2021. 09. 06 ~ 09. 23
2021. 10. 14 ~ 10. 28


Shareholder meeting
N/A
2021. 10. 29


Stock purchase right exercise
N/A
2021. 10. 29 ~ 11. 18


Trade suspension
N/A
2021. 11. 29 ~ 12. 24


Listing
N/A
2021. 12. 27

Source: DART



A "Nearly" Pure Arb Opportunity: SK Holdings & SK Materials Stock Swap

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

<div class="content-highlight">
<p><strong>SK REIT is one of the most attractive REITs in Korea so far in 2021. As such, we have a positive view of this IPO and would subscribe to this deal. </strong></p>
<p>SK REIT will be the REIT vehicle of the SK Group. Over the next 5-10 years, SK REIT has the potential to grow its assets to about 5-10 trillion won, in our view. SK REIT currently has two major properties including SK Seorin building and 116 gas stations which are very stable and have SK Group companies as tenants. The annual dividend yield is 5.4% which we think is quite achievable. </p>
<div>SK REIT has the right to negotiate the preferred purchase of core real estate assets held by SK Group. <span>If all assets subject to preferred purchase negotiation rights held by SK REIT are incorporated, it is expected that the total amount of assets will be approximately 4 trillion won by 2024. </span><span>In addition, SK REIT plans to expand into SK Group's core business-related assets such as data centers, new energy, logistics centers, and overseas assets which could be included in its REIT portfolio.</span>
</div>
<div></div>
</div><div>SK REIT IPO is expected to be completed in September. The expected IPO price per share is 5,000 won and there are 46.5 million shares offered in the IPO. The IPO deal size is about $200 million. The institutional investors will be allotted about 70% and retail will account for the rest. The book building for the institutional investors starts on 23 August. Expected market cap after the IPO is 775 billion won. Korea Investment &amp; Securities, Samsung Securities, and SK Securities are the major bankers in this deal. </div><table class="table table-striped">
<colgroup>
<col>
<col>
</colgroup>
<tbody>
<tr><td colspan="2" style="width: 518pt;"><div>Deal Specifics of the SK REIT IPO:</div></td></tr>
<tr>
<td>Lead underwriters of the IPO: </td>
<td style="width: 260pt;">Korea Investment &amp; Securities, Samsung Securities, SK Securities</td>
</tr>
<tr>
<td>Expected IPO price per share: </td>
<td style="width: 260pt;">5,000 won (low)/5,000 won (high)</td>
</tr>
<tr>
<td>Number of Shares for IPO:</td>
<td style="width: 260pt;">46.5mn </td>
</tr>
<tr>
<td>IPO base deal size: </td>
<td style="width: 260pt;">US$200mn</td>
</tr>
<tr>
<td>Expected common shares outstanding, fully diluted (post-IPO):  </td>
<td style="width: 260pt;">155mn shares</td>
</tr>
<tr>
<td>Expected market cap after IPO:</td>
<td style="width: 260pt;">775 billion won</td>
</tr>
<tr>
<td>Book open: </td>
<td style="text-align: left; width: 260pt;">23-Aug-21</td>
</tr>
<tr>
<td>Book closed:</td>
<td style="text-align: left; width: 260pt;">24-Aug-21</td>
</tr>
<tr>
<td>Listing date: </td>
<td style="text-align: left; width: 260pt;">TBD</td>
</tr>
<tr>
<td>Source: Company data</td>
<td> </td>
</tr>
</tbody>
</table>


SK REIT is one of the most attractive REITs in Korea so far in 2021. As such, we have a positive view of this IPO and would subscribe to this deal. 
SK REIT will be the REIT vehicle of the SK Group. Over the next 5-10 years, SK REIT has the potential to grow its assets to about 5-10 trillion won, in our view. SK REIT currently has two major properties including SK Seorin building and 116 gas stations which are very stable and have SK Group companies as tenants. The annual dividend yield is 5.4% which we think is quite achievable. 
SK REIT has the right to negotiate the preferred purchase of core real estate assets held by SK Group. If all assets subject to preferred purchase negotiation rights held by SK REIT are incorporated, it is expected that the total amount of assets will be approximately 4 trillion won by 2024. In addition, SK REIT plans to expand into SK Group's core business-related assets such as data centers, new energy, logistics centers, and overseas assets which could be included in its REIT portfolio.


SK REIT IPO is expected to be completed in September. The expected IPO price per share is 5,000 won and there are 46.5 million shares offered in the IPO. The IPO deal size is about $200 million. The institutional investors will be allotted about 70% and retail will account for the rest. The book building for the institutional investors starts on 23 August. Expected market cap after the IPO is 775 billion won. Korea Investment &amp; Securities, Samsung Securities, and SK Securities are the major bankers in this deal. 





Deal Specifics of the SK REIT IPO:

Lead underwriters of the IPO: 
Korea Investment &amp; Securities, Samsung Securities, SK Securities


Expected IPO price per share: 
5,000 won (low)/5,000 won (high)


Number of Shares for IPO:
46.5mn 


IPO base deal size: 
US$200mn


Expected common shares outstanding, fully diluted (post-IPO):  
155mn shares


Expected market cap after IPO:
775 billion won


Book open: 
23-Aug-21


Book closed:
24-Aug-21


Listing date: 
TBD


Source: Company data
 




SK REIT IPO - Benchmarking Singapore's Ascendas REIT

<p>A battery developer<a href="https://www.electrive.com/2021/07/14/ses-to-hit-the-stock-market-via-merger-with-ivanhoe-capital/" target="_blank" rel="noopener"> SES</a> has announced it will merge with the SPAC Ivanhoe Capital Acquisition on the US stock exchange. After this merger with SPAC Ivanhoe, the company will have an estimated value of $3.6 billion. In this transaction, SES will receive $476 million. </p>

A battery developer SES has announced it will merge with the SPAC Ivanhoe Capital Acquisition on the US stock exchange. After this merger with SPAC Ivanhoe, the company will have an estimated value of $3.6 billion. In this transaction, SES will receive $476 million. 

The Merger Between SES & SPAC Ivanhoe - Impact on SK Holdings

<p>SK Innovation announced at today's IR presentation that it is considering spinning off the rechargeable battery business. <span>At the same time, SK Innovation said that it would achieve an EBITDA of ₩2.5T in the battery business by 2025.</span></p><p>The specific performance targets for each year of the battery business are as follows.</p><ul>
<li><strong>First, they said that the battery business would turn to the black next year. After that, the company plans to achieve an EBITDA of ₩1T in 2023 and an EBITDA of ₩2.5T in 2025.</strong></li>
<li><strong>For SK IE Technology, they set EBITDA targets of ₩300B next year, ₩700B in 2023, and ₩1.4T in 2025.</strong></li>
</ul>

SK Innovation announced at today's IR presentation that it is considering spinning off the rechargeable battery business. At the same time, SK Innovation said that it would achieve an EBITDA of ₩2.5T in the battery business by 2025.The specific performance targets for each year of the battery business are as follows.
First, they said that the battery business would turn to the black next year. After that, the company plans to achieve an EBITDA of ₩1T in 2023 and an EBITDA of ₩2.5T in 2025.
For SK IE Technology, they set EBITDA targets of ₩300B next year, ₩700B in 2023, and ₩1.4T in 2025.


SK Innovation Battery Spinoff: What's Known at This Point

<p>There seems to be confusion about the financial statements disclosed by SK Telecom through public disclosure.</p><hr><h2>Spinoff ratio</h2><p>First, the spinoff ratio is calculated as the equity ratio of the split-based financial statements.</p><ul>
<li>Post-spinoff SKT (the surviving company)'s spinoff ratio comes at <strong>₩10,441.3B / (₩10,441.3B + ₩6,829.9B)</strong>.</li>
<li>Similarly, SKT Investment (the new company)'s spinoff ratio is obtained by dividing <strong>₩6,829.9B by (₩10,441.3B + ₩6,829.9B)</strong>.</li>
</ul><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Financials"}'>Financials</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Surviving"}'>Surviving</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"New"}'>New</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Name"}'>Name</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SK Telecom"}'>Post-spinoff SKT</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SKT Investment"}'>SKT Investment</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Total equity"}'><strong>Total equity</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":10441.3}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}'><strong>₩10,441.3B</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":6829.9}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}'><strong>₩6,829.9B</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Spinoff ratio"}'><strong>Spinoff ratio</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.6073625}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'><strong>60.74%</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.3926375}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'><strong>39.26%</strong></td>
</tr>
<tr><td colspan="3" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><h2>De-consolidated sales of each spinoff company</h2><p>Now, what's confusing many investors is the FY2020 de-consolidated sales.</p><p>The company specified <strong>₩11.75T for post-spinoff SKT's FY2020 de-consolidated sales and ₩0.17T for SKT Investment in the regulatory filing</strong>.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Financials"}'>Financials</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Surviving"}'>Surviving</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"New"}'>New</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Name"}'>Name</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SK Telecom"}'>Post-spinoff SKT</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SKT Investment"}'>SKT Investment</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"FY2020 de-consolidated sales"}'><strong>FY2020 de-consolidated sales</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"₩11,746.6B"}'><strong>₩11,746.6B</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"₩173.2B"}'><strong>₩173.2B</strong></td>
</tr>
<tr><td colspan="3" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><p>Consolidated sales for the fiscal year 2020 were ₩18.62T. If the de-consolidated sales of the spin-off companies are simply added up, we will see a difference of ₩6.7T.</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":"Consolidated financials"}'>Consolidated financials for FY2020</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Sales"}'><strong>Sales</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"₩18,624.7B"}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'><strong>₩18,624.7B</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Operating profit"}'> - Operating profit</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"₩1,349.3B"}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩1,349.3B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"NP to controlling stake"}'> - NP to the controlling stake</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1504.4}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩1,504.4B</td>
</tr>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Source: SK Telecom"}'>Source: SK Telecom</td></tr>
</tbody>
</table><h2>IFRS treatment &amp; consolidated sales breakdown</h2><p>I guess this is where the confusion comes from. For this, we need to know how the IFRS treats consolidated and de-consolidated sales.</p><p>In IFRS accounting standards, consolidated sales include sales of subsidiaries. In the case of affiliated companies, only gains and losses are accounted for as equity method gains and losses. Here are the general rules of determining whether a subsidiary or an affiliate.</p><ul>
<li>+50% stake: subsidiary</li>
<li>+30% stake AND the largest shareholder: subsidiary</li>
<li>20~50% stake: affiliate</li>
</ul><p><strong>Here is the FY2020 consolidated sales breakdown of pre-spinoff SKT. We have a de-consolidated sales of ₩11.75T, supposedly from SKT's MNO business. We then have an additional ₩6.88T sales from the subsidiaries. The affiliates, including SK Hynix, are reflected in the equity method income.</strong></p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr><td colspan="3" data-sheets-value='{"1":2,"2":"Pre-spinoff SKT consolidated sales breakdown for FY2020"}'>Pre-spinoff SKT consolidated sales breakdown for FY2020</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"SK Telecom"}'>SK Telecom</td>
<td data-sheets-value='{"1":2,"2":"De-consolidated sales"}'>De-consolidated sales</td>
<td data-sheets-value='{"1":3,"3":11746.6}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}' data-sheets-formula="=R[-24]C[-4]"><strong>₩11,746.6B</strong></td>
</tr>
<tr><td colspan="3"></td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"SK Broadband"}'>SK Broadband</td>
<td data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
<td rowspan="15" data-sheets-value='{"1":3,"3":6878.1}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[-13]C[-4]-R[-1]C[0]"><div><strong>₩6,878.1B</strong></div></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"SK Telink"}'>SK Telink</td>
<td data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"PS&amp;Marketing"}'>PS&amp;Marketing</td>
<td data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Service Top"}'>Service Top</td>
<td data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Service Ace"}'>Service Ace</td>
<td data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"SK O&amp;S"}'>SK O&amp;S</td>
<td data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"ADT Caps"}'>ADT Caps</td>
<td data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"11st Street"}'>11st Street</td>
<td data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"T Map Mobility"}'>T Map Mobility</td>
<td data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"One Store"}'>One Store</td>
<td data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Dream Us Company"}'>Dream Us Company</td>
<td data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"SK Planet"}'>SK Planet</td>
<td data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Incross"}'>Incross</td>
<td data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"SK Telecom TMT Investment"}'>SK Telecom TMT Investment</td>
<td data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"ID Quantique"}'>ID Quantique</td>
<td data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr><td colspan="3"><div></div></td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"SK Hynix"}'>SK Hynix</td>
<td data-sheets-value='{"1":2,"2":"Affiliate"}'>Affiliate</td>
<td rowspan="6" data-sheets-value='{"1":2,"2":"Equity method income"}'><div><strong>Equity method income</strong></div></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Contents Wavve"}'>Contents Wavve</td>
<td data-sheets-value='{"1":2,"2":"Affiliate"}'>Affiliate</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"F&amp;U Credit Info"}'>F&amp;U Credit Info</td>
<td data-sheets-value='{"1":2,"2":"Affiliate"}'>Affiliate</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"FSK L&amp;S"}'>FSK L&amp;S</td>
<td data-sheets-value='{"1":2,"2":"Affiliate"}'>Affiliate</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Nano N Tech"}'>Nano N Tech</td>
<td data-sheets-value='{"1":2,"2":"Affiliate"}'>Affiliate</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"SK Telecom CST1"}'>SK Telecom CST1</td>
<td data-sheets-value='{"1":2,"2":"Affiliate"}'>Affiliate</td>
</tr>
<tr><td colspan="3" data-sheets-value='{"1":2,"2":"Source: SK Telecom &amp; FnGuide"}'>Source: SK Telecom &amp; FnGuide</td></tr>
</tbody>
</table><h2>Post-spinoff consolidated sales</h2><p>Now, below are the post-spinoff consolidated sales of each spinoff company.</p><ul>
<li>Post-spinoff SKT: <strong>₩11.75T + the sum of its post-spinoff subsidiaries</strong>
</li>
<li>SKT Investment: <strong>₩0.17T + the sum of its post-spinoff subsidiaries</strong>
</li>
</ul><p>The sum of both companies' consolidated sales (not de-consolidated sales) should be equal to <strong>₩18.62T</strong>, the consolidated sales of pre-spinoff SKT.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td colspan="2" style="width: 352.94px;" data-sheets-value='{"1":2,"2":"SK Telecom"}'>Post-spinoff SKT</td>
<td colspan="2" style="width: 352.074px;" data-sheets-value='{"1":2,"2":"SK Investment"}'>SKT Investment</td>
</tr>
<tr>
<td style="width: 170px;"><strong> - Deconsolidated</strong></td>
<td style="width: 161.946px;"><strong>₩11,746.6B</strong></td>
<td style="width: 169.588px;"><strong> - Deconsolidated</strong></td>
<td style="width: 161.491px;"><strong>₩173.2B</strong></td>
</tr>
<tr>
<td style="width: 170px;" data-sheets-value='{"1":2,"2":"SK Broadband"}'>SK Broadband</td>
<td style="width: 161.946px;" data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
<td style="width: 169.588px;" data-sheets-value='{"1":2,"2":"ADT Caps"}'>ADT Caps</td>
<td style="width: 161.491px;" data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td style="width: 170px;" data-sheets-value='{"1":2,"2":"SK Telink"}'>SK Telink</td>
<td style="width: 161.946px;" data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
<td style="width: 169.588px;" data-sheets-value='{"1":2,"2":"11st Street"}'>11st Street</td>
<td style="width: 161.491px;" data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td style="width: 170px;" data-sheets-value='{"1":2,"2":"PS&amp;Marketing"}'>PS&amp;Marketing</td>
<td style="width: 161.946px;" data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
<td style="width: 169.588px;" data-sheets-value='{"1":2,"2":"T Map Mobility"}'>T Map Mobility</td>
<td style="width: 161.491px;" data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td style="width: 170px;" data-sheets-value='{"1":2,"2":"Service Top"}'>Service Top</td>
<td style="width: 161.946px;" data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
<td style="width: 169.588px;" data-sheets-value='{"1":2,"2":"One Store"}'>One Store</td>
<td style="width: 161.491px;" data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td style="width: 170px;" data-sheets-value='{"1":2,"2":"Service Ace"}'>Service Ace</td>
<td style="width: 161.946px;" data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
<td style="width: 169.588px;" data-sheets-value='{"1":2,"2":"Dream Us Company"}'>Dream Us Company</td>
<td style="width: 161.491px;" data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td style="width: 170px;" data-sheets-value='{"1":2,"2":"SK O&amp;S"}'>SK O&amp;S</td>
<td style="width: 161.946px;" data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
<td style="width: 169.588px;" data-sheets-value='{"1":2,"2":"SK Planet"}'>SK Planet</td>
<td style="width: 161.491px;" data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td style="width: 170px;" data-sheets-value='{"1":2,"2":"F&amp;U Credit Info"}'><strong> - Consolidated</strong></td>
<td style="width: 161.946px;" data-sheets-value='{"1":2,"2":"Affiliate"}'><strong>Sum of subsidiaries</strong></td>
<td style="width: 169.588px;" data-sheets-value='{"1":2,"2":"Incross"}'>Incross</td>
<td style="width: 161.491px;" data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td style="width: 170px;">F&amp;U Credit Info</td>
<td style="width: 161.946px;">Affiliate</td>
<td style="width: 169.588px;" data-sheets-value='{"1":2,"2":"ID Quantique"}'>ID Quantique</td>
<td style="width: 161.491px;" data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td style="width: 170px;"></td>
<td style="width: 161.946px;"></td>
<td style="width: 169.588px;"><strong> - Consolidated</strong></td>
<td style="width: 161.491px;"><strong>Sum of subsidiaries</strong></td>
</tr>
<tr>
<td style="width: 170px;"></td>
<td style="width: 161.946px;"></td>
<td style="width: 169.588px;" data-sheets-value='{"1":2,"2":"SK Hynix"}'>SK Hynix</td>
<td style="width: 161.491px;" data-sheets-value='{"1":2,"2":"Affiliate"}'>Affiliate</td>
</tr>
<tr>
<td style="width: 170px;"></td>
<td style="width: 161.946px;"></td>
<td style="width: 169.588px;" data-sheets-value='{"1":2,"2":"Contents Wavve"}'>Contents Wavve</td>
<td style="width: 161.491px;" data-sheets-value='{"1":2,"2":"Affiliate"}'>Affiliate</td>
</tr>
<tr>
<td style="width: 170px;"></td>
<td style="width: 161.946px;"></td>
<td style="width: 169.588px;" data-sheets-value='{"1":2,"2":"FSK L&amp;S"}'>FSK L&amp;S</td>
<td style="width: 161.491px;" data-sheets-value='{"1":2,"2":"Affiliate"}'>Affiliate</td>
</tr>
<tr>
<td style="width: 170px;"></td>
<td style="width: 161.946px;"></td>
<td style="width: 169.588px;" data-sheets-value='{"1":2,"2":"Nano N Tech"}'>Nano N Tech</td>
<td style="width: 161.491px;" data-sheets-value='{"1":2,"2":"Affiliate"}'>Affiliate</td>
</tr>
<tr>
<td style="width: 170px;"></td>
<td style="width: 161.946px;"></td>
<td style="width: 169.588px;" data-sheets-value='{"1":2,"2":"SK Telecom CST1"}'>SK Telecom CST1</td>
<td style="width: 161.491px;" data-sheets-value='{"1":2,"2":"Affiliate"}'>Affiliate</td>
</tr>
<tr><td colspan="4" style="width: 726.008px;" data-sheets-value='{"1":2,"2":"Source: SK Telecom &amp; FnGuide"}'>Source: SK Telecom &amp; FnGuide</td></tr>
</tbody>
</table><p>SKT Investment is a pure holding company having zero operating operation. How come does it have ₩0.17T worth of de-consolidated sales?</p><p>SKT explains this in the filing. As stated below, SKT Investment now recognizes dividend income, which was previously recognized as non-operating income before the spinoff, as sales in its de-consolidated (separate) financial statements.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/213/260/original/Screen+Shot+2021-06-15+at+5.24.49+PM.png?1623793227" class="editor-image img-responsive" data-smartkarma-image-id="213260"></figure></section><p>So, the sum of both companies' consolidated sales would be a little more than <strong>₩18.62T</strong>, by a difference of ₩0.17T.</p><div class="content-highlight"><p><strong>My estimation is post-spinoff SKT will be around ₩16T (mainly due to the presence of SK Broadband), and SKT Investment's consolidated sales for FY2020 should be slightly less than ₩3T.</strong></p></div>

There seems to be confusion about the financial statements disclosed by SK Telecom through public disclosure.Spinoff ratioFirst, the spinoff ratio is calculated as the equity ratio of the split-based financial statements.
Post-spinoff SKT (the surviving company)'s spinoff ratio comes at ₩10,441.3B / (₩10,441.3B + ₩6,829.9B).
Similarly, SKT Investment (the new company)'s spinoff ratio is obtained by dividing ₩6,829.9B by (₩10,441.3B + ₩6,829.9B).








Financials
Surviving
New


Name
Post-spinoff SKT
SKT Investment


Total equity
₩10,441.3B
₩6,829.9B


Spinoff ratio
60.74%
39.26%

Source: DART

De-consolidated sales of each spinoff companyNow, what's confusing many investors is the FY2020 de-consolidated sales.The company specified ₩11.75T for post-spinoff SKT's FY2020 de-consolidated sales and ₩0.17T for SKT Investment in the regulatory filing.







Financials
Surviving
New


Name
Post-spinoff SKT
SKT Investment


FY2020 de-consolidated sales
₩11,746.6B
₩173.2B

Source: DART

Consolidated sales for the fiscal year 2020 were ₩18.62T. If the de-consolidated sales of the spin-off companies are simply added up, we will see a difference of ₩6.7T.





Consolidated financials for FY2020

Sales
₩18,624.7B


 - Operating profit
₩1,349.3B


 - NP to the controlling stake
₩1,504.4B

Source: SK Telecom

IFRS treatment &amp; consolidated sales breakdownI guess this is where the confusion comes from. For this, we need to know how the IFRS treats consolidated and de-consolidated sales.In IFRS accounting standards, consolidated sales include sales of subsidiaries. In the case of affiliated companies, only gains and losses are accounted for as equity method gains and losses. Here are the general rules of determining whether a subsidiary or an affiliate.
+50% stake: subsidiary
+30% stake AND the largest shareholder: subsidiary
20~50% stake: affiliate
Here is the FY2020 consolidated sales breakdown of pre-spinoff SKT. We have a de-consolidated sales of ₩11.75T, supposedly from SKT's MNO business. We then have an additional ₩6.88T sales from the subsidiaries. The affiliates, including SK Hynix, are reflected in the equity method income.






Pre-spinoff SKT consolidated sales breakdown for FY2020

SK Telecom
De-consolidated sales
₩11,746.6B



SK Broadband
Subsidiary
₩6,878.1B


SK Telink
Subsidiary


PS&amp;Marketing
Subsidiary


Service Top
Subsidiary


Service Ace
Subsidiary


SK O&amp;S
Subsidiary


ADT Caps
Subsidiary


11st Street
Subsidiary


T Map Mobility
Subsidiary


One Store
Subsidiary


Dream Us Company
Subsidiary


SK Planet
Subsidiary


Incross
Subsidiary


SK Telecom TMT Investment
Subsidiary


ID Quantique
Subsidiary



SK Hynix
Affiliate
Equity method income


Contents Wavve
Affiliate


F&amp;U Credit Info
Affiliate


FSK L&amp;S
Affiliate


Nano N Tech
Affiliate


SK Telecom CST1
Affiliate

Source: SK Telecom &amp; FnGuide

Post-spinoff consolidated salesNow, below are the post-spinoff consolidated sales of each spinoff company.
Post-spinoff SKT: ₩11.75T + the sum of its post-spinoff subsidiaries

SKT Investment: ₩0.17T + the sum of its post-spinoff subsidiaries

The sum of both companies' consolidated sales (not de-consolidated sales) should be equal to ₩18.62T, the consolidated sales of pre-spinoff SKT.








Post-spinoff SKT
SKT Investment


 - Deconsolidated
₩11,746.6B
 - Deconsolidated
₩173.2B


SK Broadband
Subsidiary
ADT Caps
Subsidiary


SK Telink
Subsidiary
11st Street
Subsidiary


PS&amp;Marketing
Subsidiary
T Map Mobility
Subsidiary


Service Top
Subsidiary
One Store
Subsidiary


Service Ace
Subsidiary
Dream Us Company
Subsidiary


SK O&amp;S
Subsidiary
SK Planet
Subsidiary


 - Consolidated
Sum of subsidiaries
Incross
Subsidiary


F&amp;U Credit Info
Affiliate
ID Quantique
Subsidiary




 - Consolidated
Sum of subsidiaries




SK Hynix
Affiliate




Contents Wavve
Affiliate




FSK L&amp;S
Affiliate




Nano N Tech
Affiliate




SK Telecom CST1
Affiliate

Source: SK Telecom &amp; FnGuide

SKT Investment is a pure holding company having zero operating operation. How come does it have ₩0.17T worth of de-consolidated sales?SKT explains this in the filing. As stated below, SKT Investment now recognizes dividend income, which was previously recognized as non-operating income before the spinoff, as sales in its de-consolidated (separate) financial statements.So, the sum of both companies' consolidated sales would be a little more than ₩18.62T, by a difference of ₩0.17T.My estimation is post-spinoff SKT will be around ₩16T (mainly due to the presence of SK Broadband), and SKT Investment's consolidated sales for FY2020 should be slightly less than ₩3T.

SK Telecom Spinoff Financials Confusions & Explanations

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SK Holdings Co., Ltd. is a holdings company that is engaged in various industries including energy, chemicals, information technology, semiconductors, marketing, and services businesses in South Korea and internationally.

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