Korea / Special Sits, Pairs, Index Rebalancing, Clepsydra Capital

Sanghyun Park

I investigate special situations, pairs, and index rebalancing trades in Korea.

Korea / Special Sits, Pairs, Index Rebalancing

Samsung Heavy Industries ₩1.2T Rights Offer Walkthrough & Trading Approach

Yes, We Can Short Doosan Infracore for Arb Setup Even Now with Offering Pre-Announcement

Doosan Infracore Rights Offer Walkthrough & Thoughts on Arb Trading Setups

Samsung Heavy Situation: Discussing 3 Key Issues at This Point

Samsung Heavy's Unusual Preannouncement of Rights Offer: Pave the Path for Massive Arb Trades?

Samsung Heavy Industries Passive Flow Trade on Relisting, August 10

Clepsydra Capital

Investigate special situations, pairs, and index rebalancing trades in Korea.

Equity Capital Markets

Samsung Heavy Industries / Equity Capital Markets

<h2>Korea’s shorting restriction to close the loophole for arb trading on a rights offer</h2><div><p>Korea used to allow short sellers to participate in a rights offering. It was one of the few markets that allowed it. That is, even if you shorted the shares of a company after it had announced a rights offer, you could still subscribe to new rights and repay the shorted shares with new rights.</p></div><div>
<p>Starting April 6 this year, this practice is no longer allowed.</p>
<p><a href="https://www.korea.kr/news/pressReleaseView.do?newsId=156443917" target="_blank" rel="noopener">Here is the link to the Capital Market and Financial Investment Business Act Enforcement Decree, containing the closing of this practice.</a></p>
<h2>Some confusion regarding the effective date triggering short restrictions</h2>
<p>This new rule is quite clear.</p>
<div><ul><li><strong>Those short-sellers having shorted between a day after an offering announcement day and an offering price-fixing day face the restrictions. In such a case, they are prevented from participating in an offering at all.</strong></li></ul></div>
<div>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/224/441/original/2.png?1629230887" class="editor-image img-responsive" data-smartkarma-image-id="224441"></figure></section><div class="content-highlight"><p><strong>→ But the confusion arises whether a pre-announcement qualifies as an official announcement of a rights offer.</strong></p></div>
<p><strong>Samsung Heavy Industries (SHI), which announced a capital increase yesterday, is a symbolic example. SHI made a pre-announcement on May 4 after this rule went into effect. Should this pre-announcement be regarded as an official announcement triggering short restrictions?</strong></p>
<h2>Korea FSC's initial interpretation was</h2>
<p>I initially believed that the preannouncement made on May 4 should not be considered an official offering announcement because it doesn't contain any definite detail approved by the board. That was my understanding.</p>
</div>
<div>
<p>But I wanted to be 100% sure, so I made several attempts to reach the FSC Capital Market Division (direct phone number: +82 2 2100 2655) to inquire about this issue, but to no avail.</p>
<div class="content-highlight"><p><strong>Then, after contacting the compliance teams of several brokerages, the general interpretation was that the pre-announcement date should be considered the announcement date triggering short restrictions. In particular, the compliance team of one brokerage inquired with the Korea FSC and said that they received a reply that the pre-announcement date should be regarded as the announcement date.</strong></p></div>
</div>
</div>

Korea’s shorting restriction to close the loophole for arb trading on a rights offerKorea used to allow short sellers to participate in a rights offering. It was one of the few markets that allowed it. That is, even if you shorted the shares of a company after it had announced a rights offer, you could still subscribe to new rights and repay the shorted shares with new rights.
Starting April 6 this year, this practice is no longer allowed.
Here is the link to the Capital Market and Financial Investment Business Act Enforcement Decree, containing the closing of this practice.
Some confusion regarding the effective date triggering short restrictions
This new rule is quite clear.
Those short-sellers having shorted between a day after an offering announcement day and an offering price-fixing day face the restrictions. In such a case, they are prevented from participating in an offering at all.

→ But the confusion arises whether a pre-announcement qualifies as an official announcement of a rights offer.
Samsung Heavy Industries (SHI), which announced a capital increase yesterday, is a symbolic example. SHI made a pre-announcement on May 4 after this rule went into effect. Should this pre-announcement be regarded as an official announcement triggering short restrictions?
Korea FSC's initial interpretation was
I initially believed that the preannouncement made on May 4 should not be considered an official offering announcement because it doesn't contain any definite detail approved by the board. That was my understanding.


But I wanted to be 100% sure, so I made several attempts to reach the FSC Capital Market Division (direct phone number: +82 2 2100 2655) to inquire about this issue, but to no avail.
Then, after contacting the compliance teams of several brokerages, the general interpretation was that the pre-announcement date should be considered the announcement date triggering short restrictions. In particular, the compliance team of one brokerage inquired with the Korea FSC and said that they received a reply that the pre-announcement date should be regarded as the announcement date.



Untrustworthy Korean Regulators: Short Restrictions Applicable Only from Aug 18 in SHI Rights Offer