Korea / Special Situations, Clepsydra Capital

Sanghyun Park

I investigate special situations in Korea.

Korea / Special Situations

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

15 Adds & 15 Deletes in KOSDAQ 150 Rebalancing: Passive Impact & Trade Approaches

Short Position Approach on the Index Entrants on December 10 in Korea

A "Nearly" Pure Arb Opportunity: SK Holdings & SK Materials Stock Swap

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

SKC Is Down 5% Today: Why & What Impact on SK Holdings/SK Materials Arb Spread-Hunting

Merger of SK Inc & SK Materials Holdings: A Prelude to An Eventual Merger with SK Square?

Korea / Special Sits, Pairs, Index Rebalancing

Clepsydra Capital

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

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スワップアービトラージ：キャンセルリスク評価とロング/ショート設定の機会