Brief Korea: Block Deal Sales of Celltrion & Celltrion Healthcare Stakes by ION Investments and more

In this briefing:

  1. Block Deal Sales of Celltrion & Celltrion Healthcare Stakes by ION Investments
  2. Celltrion+Celltrion Healthcare Placement- Discount Looks Enticing but the Deal Appears Opportunistic
  3. Coronavirus in Japan – At a Major Tipping Point?
  4. Korea M&A Spotlight: Binggrae Acquires Haitai’s Ice Cream Business
  5. Short Covering Continues – Celltrion Leads The Way

1. Block Deal Sales of Celltrion & Celltrion Healthcare Stakes by ION Investments

Celltrion 2

It was reported after the market close today that GIC’s investment affiliate ION Investments has put up its shares in Celltrion Inc (068270 KS) and Celltrion Healthcare (091990 KS) in block deals. ION has previously sold a 2.92% stake in Celltrion and a 1.12% stake in Celltrion Healthcare at the end of 2018. ION Investments plans to sell 2.57 million shares of Celltrion (1.9% of shares outstanding) and 2.21 million shares of Celltrion Healthcare (1.5% of shares outstanding). 

We believe these block deal sales are attractive (from the buyers’ perspective) mainly due to three main factors.

  • First, the discount range is relatively large for both deals.
  • Second, the COVID-19 coronavirus has played a major role in the capital allocation of major industry sectors. Because COVID-19 is having such an overwhelming big impact on the stock market right now, we believe this should have a relatively positive impact on Celltrion and Celltrion Healthcare. Clearly, the pharmaceutical sector has been the leading sector globally as well in Korea.
  • Third, the three Celltrion companies including Celltrion Inc (068270 KS), Celltrion Healthcare (091990 KS), and Celltrion Pharm (068760 KS) are expected to merge this year, and this potential merger was hinted by the Celltrion Chairman early this year. Although the timing remains uncertain, it certainly is feasible that these three companies will complete this merger sometime this year.

2. Celltrion+Celltrion Healthcare Placement- Discount Looks Enticing but the Deal Appears Opportunistic

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Temasek plans to raise US$380m via selling 1.9% stake in Celltrion Healthcare (091990 KS) and another US$132m via selling a 1.5% stake in Celltrion Healthcare (091990 KS).

We have covered past placement in these names:

In this insight, I’ll run both the deals through our framework and talk about views.

3. Coronavirus in Japan – At a Major Tipping Point?

Japan tests

There has been a sharp increase in new cases of COVID-19 in Japan in the past week which could potentially become a more threatening risk factor for Japan in April. 

The number of new cases of COVID-19 has surged in Japan in the past week. The three major reasons for this are likely to have been a lot greater testing for COVID-19 after the postponement of the Olympics, the influx of students returning from abroad such as the U.S. and Europe, and lack of adequate protection in the midst of millions of people gathering for the Spring cherry blossoms season. 

As a result, the spike in new cases of COVID-19 in Japan in the last week of March may not be the peak and this peak could still be extended in the next several weeks unless further drastic social distancing and other measures are enforced by the Abe administration. 

4. Korea M&A Spotlight: Binggrae Acquires Haitai’s Ice Cream Business

Binggrae icecream

On 31 March, Binggrae Co Ltd (005180 KS) announced that it will acquire 100% of the ice cream business of Haitai Confectionery & Foods (101530 KS) for 140 billion won. As a result of this acquisition, Binggrae will overtake Lotte Confectionery to become the number one player in the domestic ice cream industry with nearly 40% market share.

Haitai Confectionery will use the proceeds from this sale to reduce its debt and further invest in its confectionery and snacks products. This M&A deal appears to be a “win-win” deal for both companies as they can continue to focus on their core business strengths.

It appears that the market has a more favorable view on Binggrae following this M&A deal, whose shares have gone limit up (30%) on only 81k volume this morning, which is not materially higher than the trading volume in the past week. So there is a good chance that Binggrae’s share price continues to go up sharply tomorrow.  On the other hand, the trading volume for Haitai Confectionery is already at 0.9 million (as of 10:30AM this morning), which is already up sharply versus the past week’s levels. 

5. Short Covering Continues – Celltrion Leads The Way

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The Korea Exchange (KRX) publishes outstanding short position data daily with a two day lag. The data below is of the close of 27 March 2020, the second week where no short selling is allowed.

Current short notional on the KOSPI market is KRW 8,239bn (US$6.73bn) with the largest short notionals in Celltrion Inc (068270 KS), Samsung Electronics (005930 KS), Samsung Biologics Co., (207940 KS), Amorepacific Corp (090430 KS) and Netmarble Corporation (251270 KS)

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