Korea / Special Sits, Pairs, Index Rebalancing, Clepsydra Capital

Sanghyun Park

Korea / Special Sits, Pairs, Index Rebalancing

Clepsydra Capital

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

Event-Driven

<ul>
<li>The exercise price is the arithmetic average of weighted average prices for the past two months, the past month, and the past week from the day before the board resolution.  </li>
<li>Considering the governance structure of most local companies, a split-off will still be more likely to be preferred than a spin-off. Split-offs will emerge despite the mandate of appraisal rights.</li>
<li>We should look into staggering spread openings, with the pricing done on a two-month window, as a downward price revision will likely intensify toward the announcement with mandatory appraisal rights.</li>
</ul>


The exercise price is the arithmetic average of weighted average prices for the past two months, the past month, and the past week from the day before the board resolution.  
Considering the governance structure of most local companies, a split-off will still be more likely to be preferred than a spin-off. Split-offs will emerge despite the mandate of appraisal rights.
We should look into staggering spread openings, with the pricing done on a two-month window, as a downward price revision will likely intensify toward the announcement with mandatory appraisal rights.


Korea FSC: Official Mandate of Appraisal Rights in Split-Offs & Trading Ramifications

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

<ul>
<li>On 26 September, DB Hitek Co., Ltd. (000990 KS) announced that it will stop the proposed split-off of its semiconductor design business. </li>
<li>This move to stop the company split comes after numerous minority shareholders banded together to stop this move which could have a negative impact on DB Hitek. </li>
<li>Overall, we believe DB Hitek's decision to stop the company split driven by the campaigns from the minority shareholders is likely to have a positive impact on the company.</li>
</ul>


On 26 September, DB Hitek Co., Ltd. (000990 KS) announced that it will stop the proposed split-off of its semiconductor design business. 
This move to stop the company split comes after numerous minority shareholders banded together to stop this move which could have a negative impact on DB Hitek. 
Overall, we believe DB Hitek's decision to stop the company split driven by the campaigns from the minority shareholders is likely to have a positive impact on the company.


Minority Shareholders Convince DB Hitek to Stop a Company Split

<ul>
<li>A South Korean lawmaker introduced legislation that would mandate that appraisal right exercise prices in split-off listings (equity carve-out) be based on asset/earnings value rather than market price (stock price).</li>
<li>We may find an arb opening in DB Hitek. The appraisal price based on the asset/earnings value is at an 11.31% premium to the last close.</li>
<li>If DB HiTek postpones the split-off listing to next year, FY22 earnings should be reflected. In this case, the appraisal price will be at a 90% premium.</li>
</ul>


A South Korean lawmaker introduced legislation that would mandate that appraisal right exercise prices in split-off listings (equity carve-out) be based on asset/earnings value rather than market price (stock price).
We may find an arb opening in DB Hitek. The appraisal price based on the asset/earnings value is at an 11.31% premium to the last close.
If DB HiTek postpones the split-off listing to next year, FY22 earnings should be reflected. In this case, the appraisal price will be at a 90% premium.


New Pricing Rule for Appraisal Rights in ECO: Potential Arb Openings in DB Hitek

<ul>
<li>The results are pretty much in line with the predictions, except for Hanwha Aerospace which made it to LARGE instead of Hyundai Marine &amp; Fire Insurance.</li>
<li>Assuming that ten names, including Hyundai Marine, were traded in a LONG/SHORT basket with equal weight, the yield from August 17 to the last close would have been 4.6%.</li>
<li>I would still approach with an equal-weighted basket trading until this Thursday. This flow trading usually loses its effect rapidly after rebalancing. So, I wouldn't carry it beyond this Thursday.</li>
</ul>


The results are pretty much in line with the predictions, except for Hanwha Aerospace which made it to LARGE instead of Hyundai Marine &amp; Fire Insurance.
Assuming that ten names, including Hyundai Marine, were traded in a LONG/SHORT basket with equal weight, the yield from August 17 to the last close would have been 4.6%.
I would still approach with an equal-weighted basket trading until this Thursday. This flow trading usually loses its effect rapidly after rebalancing. So, I wouldn't carry it beyond this Thursday.


KOSPI Size Index Migration: Official Results & Trading Approach Towards Implementation

<ul>
<li>The Korea FSC finalized the additional investor protection measures: 1. stricter disclosure rules, 2. tighter listing requirements, and 3. mandatory appraisal rights.</li>
<li>The retroactive application period is five years. Companies that have been split off five years ago from the effective date are also subject to these new rules.</li>
<li>We can play LONG/SHORT aimed at staggered spreads, considering that the pricing period is 2M VWAP and that a downward price revision intensifies towards the announcement with mandatory appraisal rights.</li>
</ul>


The Korea FSC finalized the additional investor protection measures: 1. stricter disclosure rules, 2. tighter listing requirements, and 3. mandatory appraisal rights.
The retroactive application period is five years. Companies that have been split off five years ago from the effective date are also subject to these new rules.
We can play LONG/SHORT aimed at staggered spreads, considering that the pricing period is 2M VWAP and that a downward price revision intensifies towards the announcement with mandatory appraisal rights.


New Regulations on Split-Off Listing in Korea: Complete Details & Trading Implications

South Korea

DB Hitek Co., Ltd. manufactures system semiconductor and provides foundry services. The Company's products inculde fabricated wafer and integrated circuits for mobile handsets and flat panel LCDs.

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DB Hitek Co., Ltd. (000990 KS)

Korea FSC: Official Mandate of Appraisal Rights in Split-Offs & Trading Ramifications

This post details the official announcement of Korea FSC on the mandate of appraisal rights in split-offs and discusses trading ramifications.

Sanghyun Park

Minority Shareholders Convince DB Hitek to Stop a Company Split

Overall, we believe DB Hitek's decision to stop the company split driven by the campaigns from the minority shareholders is likely to have a...

Douglas Kim

New Pricing Rule for Appraisal Rights in ECO: Potential Arb Openings in DB Hitek

This post explains the newly proposed pricing rule for the appraisal rights in split-off listings (equity carve-outs) and investigates how it will...

Sanghyun Park

KOSPI Size Index Migration: Official Results & Trading Approach Towards Implementation

This post looks at the official results of the KOSPI Size Index migration in the September rebalancing and discusses the noteworthy flow patterns...

Sanghyun Park

New Regulations on Split-Off Listing in Korea: Complete Details & Trading Implications

This post details the new rules applicable to the split-off listings in Korea, which the Korea FSC finalized yesterday and will be effective as...

Sanghyun Park

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