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

<ul>
<li>FnGuide Battery Index overlaps with the rebalancing of the KRX K-New Deal. K-New Deal is March 11. As for FnGuide Battery, it will be three trading days on March 14-16.</li>
<li>Among the top-cap stocks, Samsung SDI will be the biggest beneficiary, and we need to consider a setup that utilizes Samsung SDI as a long/short partner for LG Chem.</li>
<li>LG Chem's staying significant distorts mid-caps' index weight in KRX Battery. The extent of passive outflows would be pretty substantial. So, outright short these mid-caps should deserve our attention.</li>
</ul>


FnGuide Battery Index overlaps with the rebalancing of the KRX K-New Deal. K-New Deal is March 11. As for FnGuide Battery, it will be three trading days on March 14-16.
Among the top-cap stocks, Samsung SDI will be the biggest beneficiary, and we need to consider a setup that utilizes Samsung SDI as a long/short partner for LG Chem.
LG Chem's staying significant distorts mid-caps' index weight in KRX Battery. The extent of passive outflows would be pretty substantial. So, outright short these mid-caps should deserve our attention.


FnGuide & KRX K-New Deal Batteries: Combined Passive Flows Preview on March 10-15

<ul>
<li>For this March rebalancing, the screening base date is January 28, which is the last trading day of January. So, the 3-month rebalancing review period is now done.</li>
<li>Other than LG Energy (+₩146,2B), we should pay the most attention to AfreecaTV (+1.70x), Chunbo (+0.36x), Douzone Bizon (-4.82x), and SoulBrain (-0.99x).</li>
<li>In addition, large-cap stocks such as SKIET (+0.25x), Ecopro BM (+0.10x), LG Chem (-0.62x), and Posco Chemical (-0.30x) will likely draw much attention.</li>
</ul>


For this March rebalancing, the screening base date is January 28, which is the last trading day of January. So, the 3-month rebalancing review period is now done.
Other than LG Energy (+₩146,2B), we should pay the most attention to AfreecaTV (+1.70x), Chunbo (+0.36x), Douzone Bizon (-4.82x), and SoulBrain (-0.99x).
In addition, large-cap stocks such as SKIET (+0.25x), Ecopro BM (+0.10x), LG Chem (-0.62x), and Posco Chemical (-0.30x) will likely draw much attention.


KRX K-New Deal Index Screening Period Ended: Rebalancing Changes & Passive Impacts Update

<ul>
<li>
The rebalancing cycle of the KODEX Secondary Battery ETF was changed from semi-annual to quarterly. Also, the rebalancing trading takes place for three trading days instead of one trading day.</li>
<li>
This passive impact will be different from the previous rebalancing. LG Energy and SK Innovation will likely experience a significant passive outflow. Then, most small-cap constituents will receive an inflow. </li>
<li>
Among the top weighting stocks, Samsung SDI and SKIET deserve attention. Sangsin Energy, E&amp;D, and TSI will face exclusion, while C&amp;I, Sang-A Frontec, and Enchem will likely join the ETF.</li>
</ul>



The rebalancing cycle of the KODEX Secondary Battery ETF was changed from semi-annual to quarterly. Also, the rebalancing trading takes place for three trading days instead of one trading day.

This passive impact will be different from the previous rebalancing. LG Energy and SK Innovation will likely experience a significant passive outflow. Then, most small-cap constituents will receive an inflow. 

Among the top weighting stocks, Samsung SDI and SKIET deserve attention. Sangsin Energy, E&amp;D, and TSI will face exclusion, while C&amp;I, Sang-A Frontec, and Enchem will likely join the ETF.


KODEX Battery ETF Rebalancing Cycle Changed to Quarterly: Preview for March Rebalancing

Index Rebalance

<ul>
<li>The rebalancing implementation of the FnGuide Secondary Battery Index will be on December 13. So, the ETF operator's rebalancing trading will take place at the close on December 10.</li>
<li>Among the stocks to which the ceiling is applied, the stocks with a relatively sizeable passive impact (at the current prices) are SK Innovation, Ecopro BM, and Posco Chemical.</li>
<li>Among the companies that have been listed since June, the companies that directly operate the rechargeable battery business are the following three: Enchem, GI Tech, and Onejoon.</li>
</ul>


The rebalancing implementation of the FnGuide Secondary Battery Index will be on December 13. So, the ETF operator's rebalancing trading will take place at the close on December 10.
Among the stocks to which the ceiling is applied, the stocks with a relatively sizeable passive impact (at the current prices) are SK Innovation, Ecopro BM, and Posco Chemical.
Among the companies that have been listed since June, the companies that directly operate the rechargeable battery business are the following three: Enchem, GI Tech, and Onejoon.


FnGuide Secondary Battery Index Rebalancing Preview in December: Watch Enchem

The Ecopro tender spread is still compressed at the 2% level. The current arb yield stands at 2.54% at the last close. <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":"Swap gain"}'>Swap gain</td>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"Ecopro Co., Ltd."}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula="=Terms!R[-10]C[0]">Ecopro Co., Ltd.</td>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"Ecopro HN Co Ltd"}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula="=Terms!R[-6]C[-1]">Ecopro HN Co Ltd</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Ticker"}'>Ticker</td>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"086520"}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula="=Terms!R[-10]C[0]">086520</td>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"383310"}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula="=Terms!R[-6]C[-1]">383310</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Current price"}'>Current price</td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":98400}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula='=googlefinance(Terms!R[-11]C[0], "price")'>₩98,400</td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":111100}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula='=googlefinance(Terms!R[-7]C[-1], "price")'>₩111,100</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap price"}'>Swap price</td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":95441}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula="=Terms!R[-10]C[0]">₩95,441</td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":110500}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula="=Terms!R[-6]C[-1]">₩110,500</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap ratio"}'>Swap ratio</td>
<td colspan="2" rowspan="1" style="text-align: center;" data-sheets-value='{"1":3,"3":1.157783342588615}' data-sheets-numberformat='{"1":2,"2":"#,##0.0000000","3":1}' data-sheets-formula="=R[-1]C[1]/R[-1]C[0]">1.1577833</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Price for 100 shares of the target company"}'>Price for 100 shares of the target company</td>
<td colspan="2" rowspan="1" style="text-align: center;" data-sheets-value='{"1":3,"3":11110000}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula="=R[-3]C[1]*100">₩11,110,000</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Number of new shares of the acquiring company"}'>Number of new shares of the acquiring company</td>
<td colspan="2" rowspan="1" style="text-align: center;" data-sheets-value='{"1":3,"3":115.7783342588615}' data-sheets-numberformat='{"1":2,"2":"#,##0.0000000","3":1}' data-sheets-formula="=100*R[-2]C[0]">115.7783343</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Value of the new shares at the current price"}'>Value of the new shares at the current price</td>
<td colspan="2" rowspan="1" style="text-align: center;" data-sheets-value='{"1":3,"3":11392588.091071973}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula="=R[-1]C[0]*R[-5]C[0]">₩11,392,588</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap gain"}'>Swap gain</td>
<td colspan="2" rowspan="1" style="text-align: center;" data-sheets-value='{"1":3,"3":0.0254354717436519}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=(R[-1]C[0]-R[-3]C[0])/R[-3]C[0]">2.54%</td>
</tr>
<tr><td colspan="3" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART &amp; KRX"}'>Source: DART &amp; KRX</td></tr>
</tbody>
</table>The spread has not exceeded 3% since October 8, when short-selling restrictions were lifted and arb trading became possible.<div class="content-highlight">The main reason the spread is not widening is that the share price of Ecopro HN has risen, which paradoxically shows that short-term purchases for arb trading are influencing it strongly.</div><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/236/519/original/image_27181164221634749642433.png?1634749643" class="editor-image img-responsive" data-smartkarma-image-id="236519"></figure><hr>This tender event is briefly summarized as follows:<ul>
<li>Acquirer: Ecopro Co., Ltd.</li>
<li>Stocks subject to purchase: Ecopro HN registered common stock (6,121,973 shares)</li>
<li>Payment method: Grant of new common stock of Ecopro Co., Ltd. (cash payment for fraction stocks)</li>
<li>Tendering period: October 13 ~ November 1, 2021</li>
<li>Tendering price: ₩110,500 per share</li>
<li>Ecopro Co., Ltd. issuance price of new shares: ₩95,441 per share</li>
<li>Stock exchange ratio: 1.1577833 (Ecopro 1.1577833 shares exchanged per 1 Ecopro HN share)</li>
<li>Stock settlement date and cash payment date (for fractional shares): November 4, 2021</li>
<li>Listing date: November 19, 2021</li>
<li>Subscription channel: must physically visit a Daishin Securities branch (+82 1588-4488)</li>
</ul><hr>The most active arb-trading institutional investors in stock swap events in the Korean local market are local brokerages/investment advisories. Since October 8, they have significantly increased their stock purchases of Ecopro HN. In other words, this proves that a significant level of arb trading is taking place in this event.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/236/527/original/Screen+Shot+2021-10-20+at+4.30.59+PM.png?1634761895" class="editor-image img-responsive" data-smartkarma-image-id="236527"></figure>Short-selling on Ecopro Co., Ltd. also increased significantly from October 8. For reference, October 12 was the day when Ecopro Co was shorting-restricted. By the way, we see a significant discrepancy on October 8 between local brokerages/investment advisories' net buying of Ecopro HN and the short-selling on Ecopro Co. It seems to be because those investors had bought Ecopro HN during the short-selling ban period short-sold Ecopro Co., Ltd on this day.<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/236/535/original/Screen+Shot+2021-10-20+at+4.31.17+PM.png?1634765907" class="editor-image img-responsive" data-smartkarma-image-id="236535"></figure></section>

The Ecopro tender spread is still compressed at the 2% level. The current arb yield stands at 2.54% at the last close. 







Swap gain
Ecopro Co., Ltd.
Ecopro HN Co Ltd


Ticker
086520
383310


Current price
₩98,400
₩111,100


Swap price
₩95,441
₩110,500


Swap ratio
1.1577833


Price for 100 shares of the target company
₩11,110,000


Number of new shares of the acquiring company
115.7783343


Value of the new shares at the current price
₩11,392,588


Swap gain
2.54%

Source: DART &amp; KRX

The spread has not exceeded 3% since October 8, when short-selling restrictions were lifted and arb trading became possible.The main reason the spread is not widening is that the share price of Ecopro HN has risen, which paradoxically shows that short-term purchases for arb trading are influencing it strongly.This tender event is briefly summarized as follows:
Acquirer: Ecopro Co., Ltd.
Stocks subject to purchase: Ecopro HN registered common stock (6,121,973 shares)
Payment method: Grant of new common stock of Ecopro Co., Ltd. (cash payment for fraction stocks)
Tendering period: October 13 ~ November 1, 2021
Tendering price: ₩110,500 per share
Ecopro Co., Ltd. issuance price of new shares: ₩95,441 per share
Stock exchange ratio: 1.1577833 (Ecopro 1.1577833 shares exchanged per 1 Ecopro HN share)
Stock settlement date and cash payment date (for fractional shares): November 4, 2021
Listing date: November 19, 2021
Subscription channel: must physically visit a Daishin Securities branch (+82 1588-4488)
The most active arb-trading institutional investors in stock swap events in the Korean local market are local brokerages/investment advisories. Since October 8, they have significantly increased their stock purchases of Ecopro HN. In other words, this proves that a significant level of arb trading is taking place in this event.Short-selling on Ecopro Co., Ltd. also increased significantly from October 8. For reference, October 12 was the day when Ecopro Co was shorting-restricted. By the way, we see a significant discrepancy on October 8 between local brokerages/investment advisories' net buying of Ecopro HN and the short-selling on Ecopro Co. It seems to be because those investors had bought Ecopro HN during the short-selling ban period short-sold Ecopro Co., Ltd on this day.

Ecopro Tender Event: Pro-Ration Risk Analysis & Arb Spread Widening Possibilities

South Korea

Ecopro BM Co.,Ltd develops and manufactures advanced materials. The Company produces and sells high-nickel cathode materials and other products. Ecopro BM markets its products throughout Korea.

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Ecopro BM (247540 KS)

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