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>Many employees of both companies must have participated in the ESOP subscription with stock-backed loans.</li>
<li>At the last close, the Kakao Bank ESOP must pay 14.34% of the initial total investment as additional withholdings. Krafton is much worse at 30.25%.</li>
<li>It seems highly likely that this situation will lead to a short-term flow distortion, substantial enough for us to consider setting up a position aimed at this.</li>
</ul>


Many employees of both companies must have participated in the ESOP subscription with stock-backed loans.
At the last close, the Kakao Bank ESOP must pay 14.34% of the initial total investment as additional withholdings. Krafton is much worse at 30.25%.
It seems highly likely that this situation will lead to a short-term flow distortion, substantial enough for us to consider setting up a position aimed at this.


Explaining ESOP Margin Call Situation for Kakao Bank & Krafton

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

<ul>
<li>In August, there will be material ESOP related shares of Kakao Bank, Krafton, and Lotte Rental shares that could be released (one year after their IPOs).</li>
<li>The potential sale of more ESOP shares could further negatively impact their share prices. In addition, they face significant competition and their near term financial outlook is less clear.</li>
<li>Although their valuation multiples have declined materially in the past year due to declining share prices, their valuation levels are still not overly attractive. </li>
</ul>


In August, there will be material ESOP related shares of Kakao Bank, Krafton, and Lotte Rental shares that could be released (one year after their IPOs).
The potential sale of more ESOP shares could further negatively impact their share prices. In addition, they face significant competition and their near term financial outlook is less clear.
Although their valuation multiples have declined materially in the past year due to declining share prices, their valuation levels are still not overly attractive. 


More End of Lock-Up Shares (ESOP) For Kakao Bank, Krafton, and Lotte Rental in August

<ul>
<li>The KRX will list 20 new single stock futures (SSF) and 5 single stock options (SSO) next Monday, July 25, including <strong><a href="https://www.smartkarma.com/entities/lg-energy-solution" target="_blank" data-smartkarma-citation="entities:33464:1" rel="noopener">LG Energy Solution (373220 KS)</a></strong>.</li>
<li>It seems very probable that the replacement demand for futures (short) will increase substantially due to a possible saturation of the loan market.</li>
<li>This situation, coupled with local pensions' basis trading, can lead to a significantly distorted basis. We should do basis trading or play pair trading (with LG Chem) on this.</li>
</ul>


The KRX will list 20 new single stock futures (SSF) and 5 single stock options (SSO) next Monday, July 25, including LG Energy Solution (373220 KS).
It seems very probable that the replacement demand for futures (short) will increase substantially due to a possible saturation of the loan market.
This situation, coupled with local pensions' basis trading, can lead to a significantly distorted basis. We should do basis trading or play pair trading (with LG Chem) on this.


Korea's New SSF/SSO Listing on July 25 & LG Energy's Massive Lockup Release on July 27

<ul>
<li>Our base case valuation LG Energy Solution is implied market cap of 75 trillion won or target price of 319,089 won, representing 25% below current share price.</li>
<li>Currently, LGES is trading at a premium valuation multiple on a EV/EBITDA (2023E) versus CATL. We believe LGES should trade at a discount to CATL in the next 6-12 months. </li>
<li>LGES's 6 months lock-up ends on 27 July and there are 4.3% of outstanding shares that can be sold which is likely to put negative pressure on share price.</li>
</ul>


Our base case valuation LG Energy Solution is implied market cap of 75 trillion won or target price of 319,089 won, representing 25% below current share price.
Currently, LGES is trading at a premium valuation multiple on a EV/EBITDA (2023E) versus CATL. We believe LGES should trade at a discount to CATL in the next 6-12 months. 
LGES's 6 months lock-up ends on 27 July and there are 4.3% of outstanding shares that can be sold which is likely to put negative pressure on share price.


LG Energy Solution: End of 6 Months Lock-Up Period & Valuation Sensitivity Analysis

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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Index Rebalance

<ul>
<li>There are 7 adds and 7 deletes for the <a href="https://www.smartkarma.com/entities/korea-stock-exchange-kospi-200-index" target="_blank" data-smartkarma-citation="entities:26021:1" rel="noopener">Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX)</a> rebalance to be implemented at the close on 9 June.</li>
<li>There are also a bunch of stocks that will have changes applied to their free float. There were announced last week and are much less tracked.</li>
<li>The flows and impact on some of the float change names are significant and pre-positioning and passive flows could move the stocks over the next few days.</li>
</ul>


There are 7 adds and 7 deletes for the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) rebalance to be implemented at the close on 9 June.
There are also a bunch of stocks that will have changes applied to their free float. There were announced last week and are much less tracked.
The flows and impact on some of the float change names are significant and pre-positioning and passive flows could move the stocks over the next few days.


KOSPI200 Index Rebalance: Float Changes, Flows & Trades

South Korea

Krafton, Inc. operates as a game development company. The Company develops console games, mobile games, computer games, and other related products. Krafton markets its products throughout South Korea.

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Krafton (259960 KS)

Explaining ESOP Margin Call Situation for Kakao Bank & Krafton

This post investigates the ESOP margin call situation for Kakao Bank and Krafton, which are about to face the ESOP lockup releases on August 6 and...

Sanghyun Park

More End of Lock-Up Shares (ESOP) For Kakao Bank, Krafton, and Lotte Rental in August

In August, there will be material ESOP related shares of Kakao Bank, Krafton, and Lotte Rental shares that could be released (one year after their...

Douglas Kim

Korea's New SSF/SSO Listing on July 25 & LG Energy's Massive Lockup Release on July 27

This post details Korea's new SSF/SSO listing on July 25 and investigates potential basis & pair trading opportunities on LG Energy Solution amid...

Sanghyun Park

LG Energy Solution: End of 6 Months Lock-Up Period & Valuation Sensitivity Analysis

Our base case valuation LG Energy Solution is implied market cap of 75 trillion won or target price of 319,089 won, representing 25% below current...

Douglas Kim

KOSPI200 Index Rebalance: Float Changes, Flows & Trades

There are significant flows and impact on some stocks that have float changes at the upcoming KOSPI2 rebalance. With over 5 days ADV to buy,...

Brian Freitas

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