Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Event-Driven

<div class="content-highlight"><p>In this insight, we highlight the closing of the pricing gaps between the major Korean holdcos and opcos, especially with the upcoming end of the ban on the short selling of shares in Korea in May. In this insight, we highlight 26 pair trades that involve Korean holdcos and opcos.</p></div><p>Just a reminder that the ban on short selling of KOSPI 200 and KOSDAQ 150 included stocks will remain in place until May 2nd and investors will be able to resume their shorting on these 350 stocks starting on May 3rd. Once this ban on short selling of stocks ends, there could be more investors that may look to add to the holdco shares and short the opco shares (especially among the pairs where the holdco shares have underperformed the opco shares in the past year). However, some of these moves have already started to take place in the past few weeks, which could reduce the overall profits on the pair trades. </p><p>Traditionally, the pair trades involving Korean holdcos and opcos have been a trading strategy that many hedge funds have employed for many years. However, the ban on short selling of stocks in Korea have prevented many of these funds from employing these pair trade strategies. Once the ban ends, you will likely see these funds becoming more active in these trading methods once again. </p><div class="content-highlight">
<p>In the section below, we separated the pair trades into two different sections. The first table involves major opcos outperforming holdcos (regular and quasi) in the past year. Of the 26 pair trade strategies mentioned in this insight, this section I involves 19 of them (73% of total). The section II (which involve holdcos outperforming the opcos in the past year) involves 7 pair trade strategies (27% of total).</p>
<p>In other words, the opcos in general have vastly outperformed the holdcos in the past year, especially due to the ban on the short selling of stocks in Korea. Because the opcos tend to be the bigger company than the holdcos in terms of market cap, many fund managers (both active and passive) have tended to just invest in the opcos and pay less attention to the holdcos.  </p>
</div><p>Also, we described the holdcos as either regular or quasi. SK Telecom and Samsung C&amp;T would be examples of "quasi" holdcos whereas Orion Holdings and Hanjin Kal would be examples of regular holdcos. </p>

In this insight, we highlight the closing of the pricing gaps between the major Korean holdcos and opcos, especially with the upcoming end of the ban on the short selling of shares in Korea in May. In this insight, we highlight 26 pair trades that involve Korean holdcos and opcos.Just a reminder that the ban on short selling of KOSPI 200 and KOSDAQ 150 included stocks will remain in place until May 2nd and investors will be able to resume their shorting on these 350 stocks starting on May 3rd. Once this ban on short selling of stocks ends, there could be more investors that may look to add to the holdco shares and short the opco shares (especially among the pairs where the holdco shares have underperformed the opco shares in the past year). However, some of these moves have already started to take place in the past few weeks, which could reduce the overall profits on the pair trades. Traditionally, the pair trades involving Korean holdcos and opcos have been a trading strategy that many hedge funds have employed for many years. However, the ban on short selling of stocks in Korea have prevented many of these funds from employing these pair trade strategies. Once the ban ends, you will likely see these funds becoming more active in these trading methods once again. 
In the section below, we separated the pair trades into two different sections. The first table involves major opcos outperforming holdcos (regular and quasi) in the past year. Of the 26 pair trade strategies mentioned in this insight, this section I involves 19 of them (73% of total). The section II (which involve holdcos outperforming the opcos in the past year) involves 7 pair trade strategies (27% of total).
In other words, the opcos in general have vastly outperformed the holdcos in the past year, especially due to the ban on the short selling of stocks in Korea. Because the opcos tend to be the bigger company than the holdcos in terms of market cap, many fund managers (both active and passive) have tended to just invest in the opcos and pay less attention to the holdcos.  
Also, we described the holdcos as either regular or quasi. SK Telecom and Samsung C&amp;T would be examples of "quasi" holdcos whereas Orion Holdings and Hanjin Kal would be examples of regular holdcos. 

Closing the Gap: Korean Holdcos Vs. Opcos

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.

<p>The three-party opposition, the KCGI (activist fund), Bando Group, and Cho Hyun-ah (the eldest sibling of the Hanjin owner family), ended their joint ownership of their stakes in Hanjin Kal.</p><p>The regulatory filings by all of the three parties were posted on DART last Thursday.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/198/817/original/Screen+Shot+2021-04-04+at+10.44.14+AM.png?1617547476" class="editor-image img-responsive" data-smartkarma-image-id="198817"></figure></section><div class="content-caption">(Source: DART)</div><p>They signed the joint ownership agreement a year ago, and they appear to have agreed not to renew it.</p><p>Of course, it is no surprise. Ever since KDB came into the scene, the proxy fight must have been pretty much over. With the help of KDB, the Cho WT side now controls 47.41%, whereas the opposition remains at 40.40%.</p><p>The casting votes amount to 12.19%, but local retail has only about 4%. The other 8% are held by local institutions, many of which are pro-Cho WT.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td style="width: 238.182px;" data-sheets-value='{"1":2,"2":"Hanjin Kal proxy fight"}'>Hanjin Kal proxy fight</td>
<td style="text-align: right; width: 146.364px;" data-sheets-value='{"1":2,"2":"Cho WT"}'>Cho WT</td>
<td style="text-align: right; width: 142.727px;" data-sheets-value='{"1":2,"2":"Opposition"}'>Opposition</td>
<td style="text-align: right; width: 133.636px;" data-sheets-value='{"1":2,"2":"Casting votes"}'>Casting votes</td>
</tr>
<tr>
<td style="width: 238.182px;" data-sheets-value='{"1":2,"2":"KDB"}'><strong>KDB</strong></td>
<td style="text-align: right; width: 146.364px;" data-sheets-value='{"1":3,"3":0.1066}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'><strong>10.66%</strong></td>
<td style="text-align: right; width: 142.727px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right; width: 133.636px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td style="width: 238.182px;" data-sheets-value='{"1":2,"2":"Cho WT"}'>Cho WT</td>
<td style="text-align: right; width: 146.364px;" data-sheets-value='{"1":3,"3":0.0582}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>5.82%</td>
<td style="text-align: right; width: 142.727px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right; width: 133.636px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td style="width: 238.182px;" data-sheets-value='{"1":2,"2":"Jeongseok Inha AF (controlled by Cho WT)"}'> - Jeongseok Inha AF (controlled by Cho WT)</td>
<td style="text-align: right; width: 146.364px;" data-sheets-value='{"1":3,"3":0.0191}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>1.91%</td>
<td style="text-align: right; width: 142.727px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right; width: 133.636px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td style="width: 238.182px;" data-sheets-value='{"1":2,"2":"Jeongseok LAF (controlled by Cho WT)"}'> - Jeongseok LAF (controlled by Cho WT)</td>
<td style="text-align: right; width: 146.364px;" data-sheets-value='{"1":3,"3":0.0096}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>0.96%</td>
<td style="text-align: right; width: 142.727px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right; width: 133.636px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td style="width: 238.182px;" data-sheets-value='{"1":2,"2":"Cho Hyun-min"}'>Cho Hyun-min</td>
<td style="text-align: right; width: 146.364px;" data-sheets-value='{"1":3,"3":0.0578}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>5.78%</td>
<td style="text-align: right; width: 142.727px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right; width: 133.636px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td style="width: 238.182px;" data-sheets-value='{"1":2,"2":"Lee Myung-hee"}'>Lee Myung-hee</td>
<td style="text-align: right; width: 146.364px;" data-sheets-value='{"1":3,"3":0.0474}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>4.74%</td>
<td style="text-align: right; width: 142.727px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right; width: 133.636px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td style="width: 238.182px;" data-sheets-value='{"1":2,"2":"Other special affiliated persons"}'>Other special affiliated persons</td>
<td style="text-align: right; width: 146.364px;" data-sheets-value='{"1":3,"3":0.0084}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>0.84%</td>
<td style="text-align: right; width: 142.727px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right; width: 133.636px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td style="width: 238.182px;" data-sheets-value='{"1":2,"2":"Delta Air Lines, Inc."}'>Delta Air Lines, Inc.</td>
<td style="text-align: right; width: 146.364px;" data-sheets-value='{"1":3,"3":0.1331}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>13.31%</td>
<td style="text-align: right; width: 142.727px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right; width: 133.636px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td style="width: 238.182px;" data-sheets-value='{"1":2,"2":"Korean Air ESOP (incl. self-ins. &amp; CFA)"}'>Korean Air ESOP (incl. self-ins. &amp; CFA)</td>
<td style="text-align: right; width: 146.364px;" data-sheets-value='{"1":3,"3":0.0339}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>3.39%</td>
<td style="text-align: right; width: 142.727px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right; width: 133.636px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td style="width: 238.182px;" data-sheets-value='{"1":2,"2":"KCGI"}'>The KCGI (activist fund)</td>
<td style="text-align: right; width: 146.364px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right; width: 142.727px;" data-sheets-value='{"1":3,"3":0.1754}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>17.54%</td>
<td style="text-align: right; width: 133.636px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td style="width: 238.182px;" data-sheets-value='{"1":2,"2":"Bando"}'>Bando</td>
<td style="text-align: right; width: 146.364px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right; width: 142.727px;" data-sheets-value='{"1":3,"3":0.1715}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>17.15%</td>
<td style="text-align: right; width: 133.636px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td style="width: 238.182px;" data-sheets-value='{"1":2,"2":"Cho Hyun-a"}'>Cho Hyun-a</td>
<td style="text-align: right; width: 146.364px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right; width: 142.727px;" data-sheets-value='{"1":3,"3":0.0571}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>5.71%</td>
<td style="text-align: right; width: 133.636px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td style="width: 238.182px;" data-sheets-value='{"1":2,"2":"Other"}'>Other</td>
<td style="text-align: right; width: 146.364px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right; width: 142.727px;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right; width: 133.636px;" data-sheets-value='{"1":3,"3":0.1219}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>12.19%</td>
</tr>
<tr>
<td style="width: 238.182px;" data-sheets-value='{"1":2,"2":"- Total"}'><strong>- Total</strong></td>
<td style="text-align: right; width: 146.364px;" data-sheets-value='{"1":3,"3":0.4741}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=sum(R[-13]C[0]:R[-5]C[0])"><strong>47.41%</strong></td>
<td style="text-align: right; width: 142.727px;" data-sheets-value='{"1":3,"3":0.40399999999999997}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=sum(R[-4]C[0]:R[-2]C[0])"><strong>40.40%</strong></td>
<td style="text-align: right; width: 133.636px;" data-sheets-value='{"1":3,"3":0.12190000000000006}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=1-R[0]C[-2]-R[0]C[-1]"><strong>12.19%</strong></td>
</tr>
<tr><td colspan="4" rowspan="1" style="width: 723.636px;" data-sheets-value='{"1":2,"2":"Source: DART &amp; FnGuide"}'>Source: DART &amp; FnGuide</td></tr>
</tbody>
</table>

The three-party opposition, the KCGI (activist fund), Bando Group, and Cho Hyun-ah (the eldest sibling of the Hanjin owner family), ended their joint ownership of their stakes in Hanjin Kal.The regulatory filings by all of the three parties were posted on DART last Thursday.(Source: DART)They signed the joint ownership agreement a year ago, and they appear to have agreed not to renew it.Of course, it is no surprise. Ever since KDB came into the scene, the proxy fight must have been pretty much over. With the help of KDB, the Cho WT side now controls 47.41%, whereas the opposition remains at 40.40%.The casting votes amount to 12.19%, but local retail has only about 4%. The other 8% are held by local institutions, many of which are pro-Cho WT.








Hanjin Kal proxy fight
Cho WT
Opposition
Casting votes


KDB
10.66%
-
-


Cho WT
5.82%
-
-


 - Jeongseok Inha AF (controlled by Cho WT)
1.91%
-
-


 - Jeongseok LAF (controlled by Cho WT)
0.96%
-
-


Cho Hyun-min
5.78%
-
-


Lee Myung-hee
4.74%
-
-


Other special affiliated persons
0.84%
-
-


Delta Air Lines, Inc.
13.31%
-
-


Korean Air ESOP (incl. self-ins. &amp; CFA)
3.39%
-
-


The KCGI (activist fund)
-
17.54%
-


Bando
-
17.15%
-


Cho Hyun-a
-
5.71%
-


Other
-
-
12.19%


- Total
47.41%
40.40%
12.19%

Source: DART &amp; FnGuide



Hanjin Kal Shorting Opportunity: Opposition Disbands, Loan Balance, & NAV Discount

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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

<p>The short sell ban in Korea that was instated on 16 March 2020 is set to expire on 15 March.</p><p>However, with mayoral elections in Seoul and Busan around the corner, politicians are said to be leaning on the FSC to extend the short sell ban. Add to that the retail outrage - from petitions to the Blue House, bus tours, and posts on K-Streetbets of targeting stocks with high short interest.</p><p>There is a high likelihood that the short sell ban gets extended by three more months to tide the politicians over the mayoral elections.</p><p>In the event that the short sell ban expires, we highlight stocks that have seen the most short covering since the start of the short sell ban, stocks with high short interest as a percentage of market cap and free float, and high days of ADV to cover.</p><p>This will have implications for many strategies and will open the door to trade the ordinaries vs preferred shares, long/short and other related strategies.</p>

The short sell ban in Korea that was instated on 16 March 2020 is set to expire on 15 March.However, with mayoral elections in Seoul and Busan around the corner, politicians are said to be leaning on the FSC to extend the short sell ban. Add to that the retail outrage - from petitions to the Blue House, bus tours, and posts on K-Streetbets of targeting stocks with high short interest.There is a high likelihood that the short sell ban gets extended by three more months to tide the politicians over the mayoral elections.In the event that the short sell ban expires, we highlight stocks that have seen the most short covering since the start of the short sell ban, stocks with high short interest as a percentage of market cap and free float, and high days of ADV to cover.This will have implications for many strategies and will open the door to trade the ordinaries vs preferred shares, long/short and other related strategies.

Korea Short Sell Ban: Elections, Public Outrage, Bus Tours, Blue House Petitions, K-Streetbets

<div class="content-highlight">
<p><strong>It is not often that a Korean company goes activist on another publicly listed company so it pays attention to this new development where HYK Partners (with major investment backing from </strong><strong><a href="https://www.smartkarma.com/entities/kyungbang-ltd" target="_blank" data-smartkarma-citation="entities:16840:1" rel="noopener">Kyungbang Ltd (000050 KS)</a>) has publicly declared that it is going activist on <a href="https://www.smartkarma.com/entities/hanjin-transportation-co" target="_blank" data-smartkarma-citation="entities:12583:1" rel="noopener">Hanjin Transportation Co (002320 KS)</a>. </strong></p>
<p><a href="https://www.smartkarma.com/entities/hanjin-transportation-co" target="_blank" data-smartkarma-citation="entities:12583:1" rel="noopener">Hanjin Transportation Co (002320 KS)</a> is an interesting stock right now. Its fundamentals are improving as evidenced by higher sales and profits of its delivery/parcel, shipping, and unloading services. Plus, HYK Partners is going activist on Hanjin Transportation. Another hedge fund (KCGI) has been reducing its stake in Hanjin Transportation (down to 9.79% as of 6 November). There may be an increasing possibility that HYK Partners could partner with KCGI in trying to improve corporate governance of Hanjin Transportation. Meanwhile, Hanjin Transportation is trading at only 0.7x P/B. Overall, we think that there are numerous positive catalysts with Hanjin Transportation and it is a stock that we believe could outperform the market over the next 6-12 months. </p>
</div>


It is not often that a Korean company goes activist on another publicly listed company so it pays attention to this new development where HYK Partners (with major investment backing from Kyungbang Ltd (000050 KS)) has publicly declared that it is going activist on Hanjin Transportation Co (002320 KS). 
Hanjin Transportation Co (002320 KS) is an interesting stock right now. Its fundamentals are improving as evidenced by higher sales and profits of its delivery/parcel, shipping, and unloading services. Plus, HYK Partners is going activist on Hanjin Transportation. Another hedge fund (KCGI) has been reducing its stake in Hanjin Transportation (down to 9.79% as of 6 November). There may be an increasing possibility that HYK Partners could partner with KCGI in trying to improve corporate governance of Hanjin Transportation. Meanwhile, Hanjin Transportation is trading at only 0.7x P/B. Overall, we think that there are numerous positive catalysts with Hanjin Transportation and it is a stock that we believe could outperform the market over the next 6-12 months. 


HYK Partners (Kyungbang) Goes Activist on Hanjin Transportation

<p>In this insight, we discuss the impact of a potential big selling in the shares of <a href="https://www.smartkarma.com/entities/hanjin-kal-corp" target="_blank" data-smartkarma-citation="entities:19086:1" rel="noopener">Hanjin KAL Corp (180640 KS)</a>, the holding company of Korean Air and the Hanjin Group. The lock-up period of 46.7% of shares of Hanjin Kal ends towards the end of this month. That is a lot of shares! The 46.7% of the shares of Hanjin Kal are related to the KCGI consortium including KCGI, Bando Construction, and Cho Hyun-Ah.</p><p>One of the likely scenarios of the changing shareholdings of Hanjin Kal post the additional capital injection by KDB is for<a href="http://news.heraldcorp.com/view.php?ud=20201118000257" target="_blank" rel="noopener"> KDB's stake</a> to increase from 0% to 10.7%, KCGI consortium stake to decline from 46.7% to 41.7%, and Chairman Cho and related parties' stake to decline from 41.1% to 37.7%. Investors are pushing down the share price of Hanjin Kal as many of them now believe an M&amp;A fight between the KCGI consortium and Chairman Cho/related parties is less likely.</p><p>Our base case NAV analysis suggests a base price of 39,830 won for Hanjin Kal shares, down 41% from the current price.</p>

In this insight, we discuss the impact of a potential big selling in the shares of Hanjin KAL Corp (180640 KS), the holding company of Korean Air and the Hanjin Group. The lock-up period of 46.7% of shares of Hanjin Kal ends towards the end of this month. That is a lot of shares! The 46.7% of the shares of Hanjin Kal are related to the KCGI consortium including KCGI, Bando Construction, and Cho Hyun-Ah.One of the likely scenarios of the changing shareholdings of Hanjin Kal post the additional capital injection by KDB is for KDB's stake to increase from 0% to 10.7%, KCGI consortium stake to decline from 46.7% to 41.7%, and Chairman Cho and related parties' stake to decline from 41.1% to 37.7%. Investors are pushing down the share price of Hanjin Kal as many of them now believe an M&amp;A fight between the KCGI consortium and Chairman Cho/related parties is less likely.Our base case NAV analysis suggests a base price of 39,830 won for Hanjin Kal shares, down 41% from the current price.

A Big Potential Selling in Hanjin Kal Once Lock-Up Period Ends & The Collapse of Warrant Price

South Korea

Hanjin KAL Corporation is a holding company. The Company, through its subsidiaries, engages in airline, hotel, and travel related services. Hanjin also invests in real estates.

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Hanjin KAL Corp (180640 KS)

Closing the Gap: Korean Holdcos Vs. Opcos

In this insight, we highlight the closing of the pricing gaps between the major Korean holdcos and opcos, especially with the upcoming end of the...

Douglas Kim

Hanjin Kal Shorting Opportunity: Opposition Disbands, Loan Balance, & NAV Discount

This post examines the shorting opportunity on Hanjin Kal as the opposition side disbands. It also looks into the current loan balance and NAV...

Sanghyun Park

Korea Short Sell Ban: Elections, Public Outrage, Bus Tours, Blue House Petitions, K-Streetbets

With the short sell ban in Korea scheduled to expire 15 March, we look at stocks that have seen the most short covering since the start of the ban,...

Brian Freitas

HYK Partners (Kyungbang) Goes Activist on Hanjin Transportation

HYK Partners (with major investment backing from Kyungbang Ltd (000050 KS)) has publicly declared that it is going activist on Hanjin...

Douglas Kim

A Big Potential Selling in Hanjin Kal Once Lock-Up Period Ends & The Collapse of Warrant Price

The lock-up period of 46.7% of shares of Hanjin Kal related to the KCGI consortium including KCGI, Bando Construction, and Cho Hyun-Ah. ends...

Douglas Kim

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52-week Range

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