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.

Index Rebalance

<ul>
<li>Attention is now being drawn on <strong>index rebalancing trading for SK Inc</strong> ahead of the trading suspension of SK Materials' stocks, which begins on November 29.</li>
<li>The KRX will apply <strong>SK Inc's increase in the number of shares</strong> on the start date of the trading suspension (<strong>November 29</strong>), not the new stock listing date (December 27).</li>
<li>Combining the above two, we should expect a passive inflow of about <strong>₩14.4B</strong><strong>at the close on November 2</strong>8, representing <strong>0.30x 30-day ADTV</strong>.</li>
</ul>


Attention is now being drawn on index rebalancing trading for SK Inc ahead of the trading suspension of SK Materials' stocks, which begins on November 29.
The KRX will apply SK Inc's increase in the number of shares on the start date of the trading suspension (November 29), not the new stock listing date (December 27).
Combining the above two, we should expect a passive inflow of about ₩14.4Bat the close on November 28, representing 0.30x 30-day ADTV.


SK Inc Merger: KOSPI 200 Passive Impact at the Close on November 28

Event-Driven

<p>The SK Inc/SK Materials merger got shareholder approval from SK Materials shareholders.</p><div class="content-highlight"><p>FYI, SK Inc doesn't need shareholder approval since this qualified as a small-scale merger under the local law.</p></div><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/239/381/original/Screen+Shot+2021-11-02+at+6.09.51+PM.png?1635892520" class="editor-image img-responsive" data-smartkarma-image-id="239381"></figure></section><div class="content-caption">(SK Materials regulatory filing - Source: KRX KIND)</div><p>The merger got a 77.7% approval rate out of the attending votes at the SK Materials shareholder meeting. But unfortunately, we only know the percentage of dissent votes out of the attending votes. The information regarding the number of attending votes isn't available. So, we are unable to accurately estimate the potential stock purchase cost at this point. </p><div id="ember2418" class="content-caption">
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/239/612/original/Screen+Shot+2021-11-01+at+10.34.36+AM.png?1635991418" class="editor-image img-responsive" data-smartkarma-image-id="239612"></figure></section><p>(Source: Digital Today)</p>
</div><p>Hence, we have to wait for the stock purchase cost, which ends on November 18. It has to stay below ₩800B, 18.24% of the SO. Otherwise, there is a risk of canceling 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"}'>Last day to own stock purchase rights</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":44066}' data-sheets-numberformat='{"1":5,"2":"yyyy. mm. dd","3":1}'>2020. 08. 23</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Ex-rights date"}'>Ex-rights date</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44442}' data-sheets-numberformat='{"1":5,"2":"yyyy. mm. dd","3":1}'>2021. 09. 03</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44442}' data-sheets-numberformat='{"1":5,"2":"yyyy. mm. dd","3":1}'>2021. 09. 03</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"}'>Dissenting opinion notice</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"2021. 09. 06 ~ 09. 23"}'>2021. 09. 06 ~ 09. 23</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"2021. 10. 14 ~ 10. 28"}'>2021. 10. 14 ~ 10. 28</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><p>How real is this cancellation risk? Well, the spread is approaching 5%. At this much widened spread, I'd say the cancellation risk is pretty real. </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":"Spread - stock purchase"}'>Spread - stock purchase</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SK Inc"}' data-sheets-formula="=R[-29]C[0]">SK Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SK Materials Co Ltd"}' data-sheets-formula="=R[-29]C[0]">SK Materials Co Ltd</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Current price"}'>Current price</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":251500}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula="=R[-29]C[0]">₩251,500</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":391900}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula="=R[-29]C[0]">₩391,900</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Exercise price"}'>Exercise price</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"N/A"}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula="=Terms!R[-18]C[0]">N/A</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":415751}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula="=Terms!R[-17]C[-1]">₩415,751</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Transfer income tax"}'>Transfer income tax</td>
<td style="text-align: right;" data-sheets-value='{"1":5,"5":{"1":3,"2":8,"3":[{"1":2,"2":"MULTIPLY"},{"1":3,"3":1},{"1":2,"2":"N/A"},{"1":5,"5":{"1":9,"2":404}},{"1":5,"5":{"1":9,"2":403}}]}}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula="=R[16]C[0]/R[9]C[0]">N/A</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":5192.22}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula="=R[16]C[0]/R[9]C[0]">₩5,192</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Shares"}'>- Shares</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":10000}' data-sheets-numberformat='{"1":2,"2":"#,##0"}' data-sheets-formula="=R[8]C[0]">N/A</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":10000}' data-sheets-numberformat='{"1":2,"2":"#,##0"}' data-sheets-formula="=R[8]C[0]">10,000</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Tax-adj. exercise price"}'>Tax-adj. exercise price</td>
<td style="text-align: right;" data-sheets-value='{"1":5,"5":{"1":3,"2":8,"3":[{"1":2,"2":"MULTIPLY"},{"1":3,"3":1},{"1":2,"2":"N/A"},{"1":5,"5":{"1":9,"2":404}},{"1":5,"5":{"1":9,"2":403}}]}}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula="=R[-3]C[0]-R[-2]C[0]">N/A</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":410558.78}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula="=R[-3]C[0]-R[-2]C[0]">₩410,559</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Spread"}'>Spread</td>
<td style="text-align: right;" data-sheets-value='{"1":5,"5":{"1":3,"2":8,"3":[{"1":2,"2":"MULTIPLY"},{"1":3,"3":1},{"1":2,"2":"N/A"},{"1":5,"5":{"1":9,"2":404}},{"1":5,"5":{"1":9,"2":403}}]}}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=(R[-1]C[0]-R[-34]C[0])/R[-34]C[0]">N/A</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.047611074253636206}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=(R[-1]C[0]-R[-5]C[0])/R[-5]C[0]">4.76%</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><p>The magic number is 18.24% of the shares outstanding. 65% of the SO are locked. So, the key is the remaining 35%. Of this, the 5% held by the NPS will exercise the appraisal rights as the NPS clearly said that it would do so if the share price stays below the exercise price. For this, the NPS didn't even attend the EGM to preserve its appraisal rights. So, we only need about 13~14% out of the 36% held by minority shareholders to break the ceiling. Even considering the shares changing hands August 23rd (the last day to own the stock purchase rights), it doesn't seem to me that reaching 13~14% out of the 36% would be terribly challenging.</p><table class="table table-striped">
<colgroup>
<col width="200">
<col width="200">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Shareholding"}'>Shareholding</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SK Materials Co Ltd"}' data-sheets-formula="=R[-23]C[0]">SK Materials Co Ltd</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Major shareholder"}'>Major shareholder</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.4911}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>49.12%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Treasury shares"}'>Treasury shares</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.1507}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>15.07%</td>
</tr>
<tr>
<td><strong>: Total</strong></td>
<td style="text-align: right;"><strong>64.19%</strong></td>
</tr>
<tr><td colspan="2"></td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"NPS"}'><strong>NPS</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Less than 5%"}'><strong>Less than 5%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Minority shareholders"}'><strong>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="=1-sum(R[-5]C[0]:R[-1]C[0])"><strong>35.81%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Foreign"}'>- Foreign</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.169}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>16.90% (as of today)</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Local institutional"}'>- Local institutional</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.05}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>5.00% (estimated)</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Local retail"}'>- Local retail</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.13910000000000006}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=1-sum(R[-8]C[0]:R[-4]C[0])-sum(R[-2]C[0]:R[-1]C[0])">13.91% (estimated)</td>
</tr>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Source: FnGuide"}'>Source: KRX &amp; FnGuide</td></tr>
</tbody>
</table>

The SK Inc/SK Materials merger got shareholder approval from SK Materials shareholders.FYI, SK Inc doesn't need shareholder approval since this qualified as a small-scale merger under the local law.(SK Materials regulatory filing - Source: KRX KIND)The merger got a 77.7% approval rate out of the attending votes at the SK Materials shareholder meeting. But unfortunately, we only know the percentage of dissent votes out of the attending votes. The information regarding the number of attending votes isn't available. So, we are unable to accurately estimate the potential stock purchase cost at this point. 
(Source: Digital Today)
Hence, we have to wait for the stock purchase cost, which ends on November 18. It has to stay below ₩800B, 18.24% of the SO. Otherwise, there is a risk of canceling 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

How real is this cancellation risk? Well, the spread is approaching 5%. At this much widened spread, I'd say the cancellation risk is pretty real. 







Spread - stock purchase
SK Inc
SK Materials Co Ltd


Current price
₩251,500
₩391,900


Exercise price
N/A
₩415,751


Transfer income tax
N/A
₩5,192


- Shares
N/A
10,000


Tax-adj. exercise price
N/A
₩410,559


Spread
N/A
4.76%

Source: DART &amp; KRX

The magic number is 18.24% of the shares outstanding. 65% of the SO are locked. So, the key is the remaining 35%. Of this, the 5% held by the NPS will exercise the appraisal rights as the NPS clearly said that it would do so if the share price stays below the exercise price. For this, the NPS didn't even attend the EGM to preserve its appraisal rights. So, we only need about 13~14% out of the 36% held by minority shareholders to break the ceiling. Even considering the shares changing hands August 23rd (the last day to own the stock purchase rights), it doesn't seem to me that reaching 13~14% out of the 36% would be terribly challenging.






Shareholding
SK Materials Co Ltd


Major shareholder
49.12%


Treasury shares
15.07%


: Total
64.19%



NPS
Less than 5%


Minority shareholders
35.81%


- Foreign
16.90% (as of today)


- Local institutional
5.00% (estimated)


- Local retail
13.91% (estimated)

Source: KRX &amp; FnGuide



SK Swap Arb: Cancellation Risk Assessment & Long/Short Setup Opportunities

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

<div class="content-highlight">
<p>In this insight, we provide an updated NAV valuation analysis of <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>. Our updated base case valuation of SK Inc is 381,838 won per share, representing 45.5% higher than current share price.</p>
<p>In the next 12 months, we believe there is likely to be a greater emphasis on three of the unlisted companies of SK Inc including<strong> SK E&amp;S, SK Pharmteco, and SK Siltron</strong> which will increasingly be considered as potential IPO candidates.</p>
</div><ul>
<li>
<strong>SK E&amp;S</strong> is a private company that is 90% owned by <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>. In early September, SK E&amp;S provided a detailed plan to aggressively expand its hydrogen, LNG, and renewable operations by 2025.</li>
<li>
<a href="https://www.ezyeconomy.com/news/articleView.html?idxno=111825" target="_blank" rel="noopener">SK Pharmteco's</a> sales increased form 110 billion won in 2017 to 710 billion won in 2020. As of July 2021, the local media mentioned that the value of SK Pharmteco could be nearly 2 trillion won but this valuation could rise to nearly 10 trillion in two to three years if the company continues to make strong progress in the CMO sector.</li>
<li>
<a href="https://www.businesspost.co.kr/BP?command=article_view&amp;num=251332" target="_blank" rel="noopener"><strong>SK Siltron</strong></a> is another private company owned SK Inc that is seriously being considered for an IPO. In September 2021, the local media mentioned that SK Siltron could be valued at about 4 to 5 trillion won. </li>
</ul>


In this insight, we provide an updated NAV valuation analysis of SK Inc (034730 KS). Our updated base case valuation of SK Inc is 381,838 won per share, representing 45.5% higher than current share price.
In the next 12 months, we believe there is likely to be a greater emphasis on three of the unlisted companies of SK Inc including SK E&amp;S, SK Pharmteco, and SK Siltron which will increasingly be considered as potential IPO candidates.


SK E&amp;S is a private company that is 90% owned by SK Inc (034730 KS). In early September, SK E&amp;S provided a detailed plan to aggressively expand its hydrogen, LNG, and renewable operations by 2025.

SK Pharmteco's sales increased form 110 billion won in 2017 to 710 billion won in 2020. As of July 2021, the local media mentioned that the value of SK Pharmteco could be nearly 2 trillion won but this valuation could rise to nearly 10 trillion in two to three years if the company continues to make strong progress in the CMO sector.

SK Siltron is another private company owned SK Inc that is seriously being considered for an IPO. In September 2021, the local media mentioned that SK Siltron could be valued at about 4 to 5 trillion won. 


SK Inc - SoTP Valuation Analysis and 3 Key Catalysts (SK E&S, SK Pharmteco, & SK Siltron)

<p>The SK Inc/SK Materials stock swap arb spread has been consistently maintained at a 3% level.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/228/039/original/image_54310233621630910463267.png?1630910464" class="editor-image img-responsive" data-smartkarma-image-id="228039"></figure><p><strong>Then, should we do this arb?</strong></p><p>This depends on how much you see the possibility of cancellation, which is the only risk of this event.</p><p>For this merger to pass the EGM, it must satisfy the following two requirements:</p><div class="content-highlight">
<ul><li><strong>2/3 of attending shareholders to vote for the merger</strong></li></ul>
<p><strong>AND</strong></p>
<ul><li><strong>1/3 of all shareholders to vote for the merger</strong></li></ul>
</div><div id="ember2904" data-message-id="514079"><div><div id="ember2905"><div><div><div><p>First, treasury shares account for 15.07%, which is non-voting shares. So, as SK Inc owns 49.1%, which translates into 58% of the voting shares, it has a pretty good shot at passing the merger by itself alone, even though it falls short of hitting 2/3 (66%).</p></div></div></div></div></div></div><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":"Shareholding - SK Materials"}'>Shareholding - SK Materials</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Share %"}'>Share %</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Voting %"}'>Voting %</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"SK Inc"}'><strong>SK Inc</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.4912}' data-sheets-numberformat='[null,3,"0.00%",1]'>49.12%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.578358648298599}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=R[0]C[-1]/(1-R3C2)"><strong>57.84%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Treasury shares"}'><strong>Treasury shares</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.1507}' data-sheets-numberformat='[null,3,"0.00%",1]'>15.07%</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"-"}'><strong>-</strong></td>
</tr>
<tr><td colspan="3"><strong> </strong></td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"NPS"}'>NPS</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.0713}' data-sheets-numberformat='[null,3,"0.00%",1]'>7.13%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.08395148946190982}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=R[0]C[-1]/(1-R3C2)"><strong>8.40%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Minority shareholders"}'>Minority shareholders</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.28680000000000005}' data-sheets-numberformat='[null,3,"0.00%",1]'>28.68%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.33768986223949143}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=R[0]C[-1]/(1-R3C2)"><strong>33.77%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Foreign"}'>- Foreign</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.175}' data-sheets-numberformat='[null,3,"0.00%",1]'>17.50%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.20605204285882492}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=R[0]C[-1]/(1-R3C2)"><strong>20.61%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Local institutions/retail"}'>- Local institutions/retail</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.11180000000000007}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=R[-2]C[0]-R[-1]C[0]">11.18%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.13163781938066652}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=R[0]C[-1]/(1-R3C2)"><strong>13.16%</strong></td>
</tr>
<tr><td colspan="3"></td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Voting rights (NPS+minority)"}'><strong>Voting rights (NPS+minority)</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.42164135170140127}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[-4]C[-1]+R[-3]C[-1])/(1-R3C2)"><strong>42.16%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Voting rights (minority)"}'><strong>Voting rights (minority)</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.33768986223949143}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[-4]C[-1])/(1-R3C2)"><strong>33.77%</strong></td>
</tr>
<tr><td colspan="3" data-sheets-value='{"1":2,"2":"Source: FnGuide"}'>Source: KRX &amp; FnGuide</td></tr>
</tbody>
</table><p>The issue is stock purchase cost, whose ceiling is set at 800 billion won, representing 18% of the SO and 51% of the minority shareholders' shares.</p><div class="content-highlight"><p><strong>It is important to note that exceeding the ceiling doesn't necessarily mean SK will cancel the merger. Instead, it will consider canceling the merger if the total cost exceeds the ceiling.</strong></p></div><div id="ember2918" data-message-id="514083"><div id="ember2919">
<p>Minority shareholders can be broken down into NPS (7.1%), foreign (17.5%), local institutions/retail (11.2%). I wouldn't care much about local institutions/retail. Local institutional investors typically do not oppose corporate events involving local conglomerates. This is because most of them are affiliates of financial holding companies, which in turn are tied to various deal opportunities with conglomerates such as SK Group. Local retail shareholders have significantly lower shareholder attendance rates. In addition, the proportion of stocks traded after August 23rd, the last day to have a dissent right, should be high.</p>
<p>Then NPS? I don't think they would vote against it. NPS has not said much about the merger so far. There has been a recent case where NPS voted against the corporate event of local conglomerates. But this merger, it'd be different. Since both are listed companies, there is no problem with the merger ratio. In addition, it would be difficult to see that the strategic value of the merger is low enough to claim that SK Materials' shareholder value is damaged.</p>
<p>Then, the key would be foreign shareholders (17.5%). Based on today's closing price, the dissent right spread is around 1%. It is questionable whether such a spread will lead to a huge dissent right exercise. But even if foreign shareholders fully exercised their dissent rights, it would be right below the ceiling.</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":"Spread - stock purchase"}'>Spread - stock purchase for SK Materials</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Current price"}'>Current price</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":410400}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩410,400</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Exercise price"}'>Exercise price</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":415751}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩415,751</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Transfer income tax"}'>Transfer income tax</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1122.22}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩1,122</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Shares"}'>- Shares</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":10000}' data-sheets-numberformat='[null,2,"#,##0"]'>10,000</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Tax-adj. exercise price"}'>Tax-adj. exercise price</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":414628.78}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩414,629</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Spread"}'>Spread</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.01030404483430806}' data-sheets-numberformat='[null,3,"0.00%",1]'>1.03%</td>
</tr>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Source: DART &amp; KRX"}'>Source: DART &amp; KRX</td></tr>
</tbody>
</table>
</div></div><div class="content-highlight"><p><strong>So, my prediction is this merger will go through.</strong></p></div>

The SK Inc/SK Materials stock swap arb spread has been consistently maintained at a 3% level.Then, should we do this arb?This depends on how much you see the possibility of cancellation, which is the only risk of this event.For this merger to pass the EGM, it must satisfy the following two requirements:
2/3 of attending shareholders to vote for the merger
AND
1/3 of all shareholders to vote for the merger
First, treasury shares account for 15.07%, which is non-voting shares. So, as SK Inc owns 49.1%, which translates into 58% of the voting shares, it has a pretty good shot at passing the merger by itself alone, even though it falls short of hitting 2/3 (66%).







Shareholding - SK Materials
Share %
Voting %


SK Inc
49.12%
57.84%


Treasury shares
15.07%
-

 

NPS
7.13%
8.40%


Minority shareholders
28.68%
33.77%


- Foreign
17.50%
20.61%


- Local institutions/retail
11.18%
13.16%



Voting rights (NPS+minority)
-
42.16%


Voting rights (minority)
-
33.77%

Source: KRX &amp; FnGuide

The issue is stock purchase cost, whose ceiling is set at 800 billion won, representing 18% of the SO and 51% of the minority shareholders' shares.It is important to note that exceeding the ceiling doesn't necessarily mean SK will cancel the merger. Instead, it will consider canceling the merger if the total cost exceeds the ceiling.
Minority shareholders can be broken down into NPS (7.1%), foreign (17.5%), local institutions/retail (11.2%). I wouldn't care much about local institutions/retail. Local institutional investors typically do not oppose corporate events involving local conglomerates. This is because most of them are affiliates of financial holding companies, which in turn are tied to various deal opportunities with conglomerates such as SK Group. Local retail shareholders have significantly lower shareholder attendance rates. In addition, the proportion of stocks traded after August 23rd, the last day to have a dissent right, should be high.
Then NPS? I don't think they would vote against it. NPS has not said much about the merger so far. There has been a recent case where NPS voted against the corporate event of local conglomerates. But this merger, it'd be different. Since both are listed companies, there is no problem with the merger ratio. In addition, it would be difficult to see that the strategic value of the merger is low enough to claim that SK Materials' shareholder value is damaged.
Then, the key would be foreign shareholders (17.5%). Based on today's closing price, the dissent right spread is around 1%. It is questionable whether such a spread will lead to a huge dissent right exercise. But even if foreign shareholders fully exercised their dissent rights, it would be right below the ceiling.






Spread - stock purchase for SK Materials

Current price
₩410,400


Exercise price
₩415,751


Transfer income tax
₩1,122


- Shares
10,000


Tax-adj. exercise price
₩414,629


Spread
1.03%

Source: DART &amp; KRX


So, my prediction is this merger will go through.

SK Inc/SK Materials Merger: Approval Possibilities & Another Arb Opportunity with SK Inc Futures

<h2>Change the articles of incorporation for stock dividends</h2><p>SK Innovation will hold an extraordinary general meeting of shareholders on September 16. The most important agenda for this general shareholders' meeting is to get shareholder approval for SK Innovation's spin-off announced on the 4th of this month.</p><div class="content-highlight">
<p><strong>But other things stand out as well.</strong></p>
<p><strong>That is, SK innovation is partially amending its articles of incorporation. And it wants to obtain shareholder approval for these amendments at this general meeting.</strong></p>
</div><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/226/948/original/Screen+Shot+2021-08-30+at+5.39.42+PM.png?1630359625" class="editor-image img-responsive" data-smartkarma-image-id="226948"></figure></section><p>Among the amendments, the amendment to allow for stock dividends is attracting attention from the market. It is unusual for a Korean local company to insert a stock dividend clause (in addition to a cash dividend) in the articles of incorporation. In fact, a stock dividend itself is unfamiliar in Korea.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/226/949/original/Screen+Shot+2021-08-30+at+5.26.21+PM.png?1630360013" class="editor-image img-responsive" data-smartkarma-image-id="226949"></figure><p>Then, on the surface, it is interpreted that SK Innovation chose a stock dividend to reduce the backlash from shareholders following the spin-off because SK Innovation lacked cash and transferred most of its cash holdings to a new battery company.</p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/226/950/original/Screen+Shot+2021-08-30+at+5.53.24+PM.png?1630360549" class="editor-image img-responsive" data-smartkarma-image-id="226950"></figure></section></section>

Change the articles of incorporation for stock dividendsSK Innovation will hold an extraordinary general meeting of shareholders on September 16. The most important agenda for this general shareholders' meeting is to get shareholder approval for SK Innovation's spin-off announced on the 4th of this month.
But other things stand out as well.
That is, SK innovation is partially amending its articles of incorporation. And it wants to obtain shareholder approval for these amendments at this general meeting.
Among the amendments, the amendment to allow for stock dividends is attracting attention from the market. It is unusual for a Korean local company to insert a stock dividend clause (in addition to a cash dividend) in the articles of incorporation. In fact, a stock dividend itself is unfamiliar in Korea.Then, on the surface, it is interpreted that SK Innovation chose a stock dividend to reduce the backlash from shareholders following the spin-off because SK Innovation lacked cash and transferred most of its cash holdings to a new battery company.


SK Innovation's Unusual Attempt to Change the Articles of Incorporation for Stock Dividends

South Korea

SK Materials Co Ltd. specializes in producing and distributing specialty gas.  The Company's main products include NF3 (Nitrogen Trifluoride) for semiconductor and LCD, SiH4 (Monosilane) for solar cells, WF6 (Tungsten Hexafluoride) and DCS (Dichlorosilane).

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SK Materials (036490 KS)

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