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Strictly Confidential and Internal Use Only
March 2012
Korea Exchange (KRX)
Note: All content, visual and pictures in this document are
copyrighted and the sole intellectual property of Tong Yang Esae
Capital Markets, LLC. Dissemination, forwarding or unauthorized
sharing or reproduction of this document without prior written
consent is strictly prohibited. Copyright 2012 Tong Yang Esae
Capital Markets, LLC
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Table of Contents
I. Motivations for an IPO
II. KRX Overview
III. Performance and Composition
IV. Liquidity
V. Foreign Listings
VI. Listing Process and Requirements
2
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I. Motivations for an IPO
3
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Why IPO?
4
Business expansion / growth
New market entry
Debt repayment / balance sheet management
Founder or investor partial or full exit
Compensation for employees
Attract talented people / resources
Prestige of a publicly listed company
Oversight of auditing firm and KRX exchange ensures transparency
to investors
Capital Raising
Monetization
Reputation / Transparency
An initial public offering gives managers the opportunity to
raise growth capital, build greater brand
awareness or cash out of an investment without the burden of
restrictive debt covenants
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II. KRX Overview
5
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Korean Exchange (KRX) Overview
6
KRX Highlights
The Korea Exchange (KRX), launched in 1956, is Asias 4th largest
stock exchange
It consists of two trading platforms, the KOSPI and KOSDAQ, as
well as the Derivatives Market
Highly liquid trading platform
Nominal listing fees compared to other exchanges
Description Lists mid- to large cap, blue chip stocks
Lists small- and medium sized companies with growth
potential
Listed Companies 791 1,031
Foreign Companies 3 12
Market Cap (As of 12/2011)
$927 bn $94 bn
LTM Trading Value (As of 12/2011)
$1,513 bn $496 bn
Turnover Ratio (Based on Market Cap)
152.3x 550.2x
KOSPI KOSDAQ
The KRX is an alternative financing solution for international
companies seeking quick and cost-effective
access to capital via a best-in-class trading platform
Source: Korea Exchange: Listing Guide for International
Companies Note : USD 1 = KRW 1,125
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Benefits to Listing on the KRX
7
Advantages to Listing Considerations to Listing
Significant liquidity yields fair valuations: trading value to
market cap exceeds other major Asian markets
Cost-effective capital raising solution: lower listing fees and
regulatory costs than peer markets
Active market for IPOs: more companies IPOd on the KRX than on
any other major Asian index in 2009
High percentage of foreign investors: yields better information
flows and increased brand awareness
KRX listing eases ability to penetrate Asian markets:
opportunity to expand business globally
KRX is still in a growth stage; as such, few U.S. companies have
listed, though several foreign companies are in the pipeline
KRX listing does not carry the same prestige as listing on the
NYSE or NASDAQ
Corporate organization and preparation, including audits from
internationally recognized firms (e.g., Ernst & Young, Price
Waterhouse, KMPG, Deloitte)
Language barrier; mitigated by the global nature of the
exchange, whereby all information is also published in English
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Listing Fee Comparison
8 Source: Korea Exchange: IPO Guide for Foreign Companies Note :
USD 1 = KRW 1,130 0.7, Y85, HK$8, S$1.5
KRXs listing fees are significantly lower than the fees of other
major exchanges
Foreign Listing Case Study
Foreign companies that list on the KRX pay listing fees that are
only 6% - 20% of fees required to list on other global exchanges
(excluding underwriters, auditors and legal fees)
IPO Listing fee Annual Fee Examination Fee Total in USD
KOSDAQ(KRX) KRW 1,286,000 KRW 229,000 KRW 5,000,000 KRW
6,515,000 $5,765
NASDAQ $75,000 $27,500 $102,500 $102,500
AIM (London) 36,020 5,463 41,483 $59,261
GEM(Hong Kong) H$200,000 H$200,000 H$400,000 $50,000
Mothers(Tokyo) 1,000,000 1,200,000 2,000,000 4,200,000
$49,412
Catallist(Singapore) S$31,200 $15,000 S$46,200 $30,800
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III. Performance and Composition
9
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Global Index Performance
10
KRX outperformed many leading global indices during the
financial crisis and has rebounded at a faster rate,
returning more money to market participants than its
competitors
Monthly Historical Performance of Global Indices
As of Dec 31, 2011, the KRX had the strongest returns among
leading global indices; performance was +42% compared to an average
decline of (9%) among the peer group
KRX had the strongest performance during the financial crisis,
with the index value only hitting a low of 65; the average indexed
low for the peer group was 52
0.00
50.00
100.00
150.00
200.00
KOSPI (Korea) SSEC (Shangai) STI (Singapore) HSI (Hong Kong)
Nikkei 225 (Japan) FTSE 100 (London) DOW (US)
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Market Activity
11 Source: Korea Exchange
$0
$200
$400
$600
$800
$1,000
$1,200
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
0
250
500
750
1,000
1,250
1,500
1,750
2,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Market capitalization continues to grow exponentially while new
share listings have moved at a slower, yet
steadier pace
KRX Market Capitalization ($mm)
KRX Number of Listed Companies
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Historical Price to Earnings
12 Source: Bloomberg
Valuation levels for companies listed on the KRX are in line
with those of other leading global indices
Historical P/E by Global Index
In 2011, KRX listed companies received more value for their
business than those listed on the DOW and FTSE
KRX P/E valuations are stable, the absence of volatility ensures
optimal pricing
0.0x 5.0x 10.0x 15.0x 20.0x 25.0x 30.0x
2009
2010
2011
20.3x
13.5x
10.0x
15.8x
13.4x
12.6x
25.2x
16.4x
19.9x
Korea: KRX 100 U.S.: Dow Jones London: FTSE
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Index Composition
13 Source: Korea Exchange
The KOSPI and KOSDAQ are comprised of a diverse cross-section of
industries, providing listing firms and
investors with the data necessary to make important valuation
and investment decisions
Index Composition by Industry
Broad industry diversification allows investors to fairly price
securities, spawning greater interest and participation in the
exchange given its reliability
Heavy industry companies account for a significant share of both
the KOSPI and KOSDAQ, however, growth among other sectors, such as
apparel and food and beverage, continue to add to each exchanges
diverse composition profile
Auto manufacturer, Hyundai, steel-maker POSCO, electronics
company Samsung and LG Chemical are the driving force behind heavy
industrys dominant presence
Industry diversification makes the KRX more attractive than the
Hong Kong and Singapore exchanges
KOSPI as of FY2011 KOSDAQ as of FY2011
Chemicals, 16%
Finance, 12%
Elec. Eqpmt., 11%
Distribution, 10%
Transport. Eqpmt., 9%
Iron/Metal Prod., 8%
Construction, 7%
Machinery, 7%
Food & Bevg., 7%
Medical
Supplies, 7% Apparel, 6%
IT Components,
11% Semiconduct., 9%
Machinery, 7%
Metal Products, 6%
Telecom & Broadcast, 6%
Vehicles & Components,
5% Chemicals, 5% Pharma, 4%
Computer Serv., 3%
Other, 44%
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IV. Liquidity
14
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0.0x
1.0x
2.0x
3.0x
4.0x
5.0x
Korea Shanghai Tokyo Hong Kong
Singapore
4.5x 4.3x
3.3x 3.0x
1.5x
Liquidity Ratio
(Daily Trading Value/Market Cap)
Liquidity
15
KRX provides a competitive liquidity proposition relative to
other leading Asian capital market alternatives
Liquidity Overview
The KRX offers greater liquidity than many of the leading Asian
exchanges, as measured by trading value to market
capitalization
At YE11, the KRX had a liquidity ratio of 4.5x, the strongest of
any major Asian index, including Tokyo and Shanghai, and
significantly outpacing the 3.3x average for the peer group
How does the KRXs strong liquidity position benefit
issuers?:
Diversified investor base: investors gravitate towards markets
with high trading activity
Securities are priced at fair value: greater consensus on
pricing between buyers and sellers given high trading turnover
Easy cash-out: issuers and investors can quickly withdraw
equity
Brand recognition: liquid markets receive greater attention from
the investment community
Liquidity Comparison at YE 2011 Market Trading Statistics at YE
2011
Comp Average
3.3x
Source: Korea Exchange, World Federation of Exchanges
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
Korea Shanghai Tokyo Hong
Kong
Singapore
$906
$2,351 $3,125
$483 $345
$4,086
$10,199 $10,441
$1,428 $513
Market Cap Trading Value
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Market Participants
16 Source: Korea Exchange
Korean retail and institutional investors are allocating a
greater share of their funds to the equity market and
becoming more active participants in the KRX, creating stable
demand and prompting more foreign listings
Buyers: Investors KRX Participation:
Growth Among International Investors
Increased trading activity among foreign investors
Foreign investors account for approximately 30% of KRXs market
cap
The uptick in foreign trading illustrates the KRXs growing
importance among the global financial community
Korean retail investors are more actively engaged in the equity
market given greater focus on long-term investing
0%
20%
40%
60%
80%
100%
2007 2008 2009 2010
Government Corporations/Inst.
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V. Foreign Listings
17
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0
20
40
60
80
100
120
140
160
180
USA Korea Hong Kong
UK Japan Singapore
2008 2009 2010
Foreign Issuers
18 Source: Korea Exchange
KRX IPO activity continues to outpace the activity on other
Asian exchanges, and demand for international
listings remains strong
Sellers: Foreign Listings
Global IPO Issuance
s Foreign firms are showing increased interest in the
Korea Exchange
19 foreign firms are currently listed on the Korea Exchange and
more than 60 firms from 10 countries are preparing to list
In 2010, more firms IPOd on the Korea Exchange than on any other
major Asian exchange
Many of South Koreas leading companies list on the KRX,
including Samsung, POSCO, SK Telecom, LG and Hyundai, illustrating
the exchanges value and stability
The presence of multi-national Korean firms legitimizes the
exchange and will draw continued interest among foreign issuers
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Historical KRX Listing Activity
19 Note: USD 1 = KRW 1,200
Foreign Listing Date
Exchange Company Country Industry Public Offering
($mm)
Aug. 2007 KOSDAQ 3NOD China Technology: Multimedia Speaker
$25.0
Nov. 2007 KOSPI HuaFeng China Manufacturing: Clothing $28.0
Jan. 2008 KOSDAQ Cowell E-Holdings China Electronics: Camera
Devices $18.7
Dec. 2008 KOSPI United Technology China Manufacturing: Clothing
$11.0
Mar. 2009 KOSDAQ China Food Packaging China Consumer Goods /
Mfg: Cans $7.5
Apr. 2009 KOSDAQ Nepro IT Japan IT/Services: Online Databases
$3.0
May 2009 KOSPI China Ocean Resource China Other: Fisheries
$44.4
May 2009 KOSDAQ China Great Star China Retail: Shoes, Sportswear
$42.5
Dec. 2009 KOSDAQ China Engine China Manufacturing: Engines
$50.0
Dec. 2009 KOSDAQ Global SM Tech China Manufacturing: Machinery
Products $15.4
Foreign companies are increasingly turning to the KRX to meet
capital market financing needs, as
evidenced by the uptick in foreign listed companies
Foreign Listing Overview
International listings are increasing at a greater rate,
compared to prior years, further diversifying the KRX
50 foreign firms are preparing to list on the KRX, 7 listed in
2010 compared with only 2 foreign firm listings in 2008; 65
companies are preparing to list
The favorable trend toward new foreign listings is expected to
continue as investors look to place capital in markets with high
return potential
Korea rebounded fastest from the global economic crisis relative
to Tokyo, Hong Kong and Singapore
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Historical KRX Listing Activity (Contd)
20
Foreign Listing Date
Exchange Company Country Industry Public Offering
($mm)
Feb. 2010 KOSDAQ China HaoRan Recycling China Other: Paper
Recycling 39.2
Mar. 2010 KOSDAQ China King-Highway China Consumer Goods: Health
Foods 74.0
Apr. 2010 KOSDAQ New Pride U.S. Autos: Renewable Tires 11.6
Apr. 2010 KOSDAQ East Asia Sports International China Retail:
Shoes, Sportswear 24.9
Jul. 2010 KOSDAQ Wayport China Manufacturing: Machinery 17.1
Sep. 2010 KOSDAQ Shenglong PV-Tech China Technology: Solar
System 42.0
Nov. 2010 KOSPI Kolao Holdings Laos Autos: Sales 49.0
Jan. 2011 KOSPI China Gaoxian China Manufacturing: Fabric
149.3
June. 2011 KOSDAQ Wanli International Hong Kong Manufacturing:
External tile 41.7
US presence on the Korea Exchange is likely to increase as the
tangible benefits of listing become more
apparent to US companies amidst targeted KRX outreach efforts,
building broader awareness
Foreign Listing Overview
Foreign listings have been dominated by Chinese companies given
the KRXs early marketing push into China; with the exchange now
focusing on the U.S. and Japanese markets, further geographic
diversification is anticipated
By 2012, the KRX expects foreign listings to have increased to
70; U.S. and Japanese companies are expected to account for a
greater share of listings, as are companies based in Thailand,
Britain, Vietnam and the Philippines
Foreign Listings (Contd)
Note: USD 1 = KRW 1,200
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Case Study New Pride
21
New Pride was the first U.S. company to be publicly traded on
the KOSDAQ
Provides secondary services to integrated logistics companies in
the U.S. and produces trailer tires. New Pride also checks and
tests related equipment and replaces components as containers are
moved from ships to railroads
Integrated services include: shipping and transportation
services between roads and railways
Founded in 1978 and based in California, the company has 32
branches in 11 states and 671 employees, only 8 of whom are
Korean
Sales:
Operating Profit:
Net Profit:
$58.3 million
$4.3 million (7% margin)
$4.0 million (6% margin)
Chairman: Edward Kim (age 69); first graduate of the Reserve
Officers Training Corps in Korea
Accidentally acquired a tire recycling company which prompted
expansion into logistics
Growth: Management believes the logistics business has
significant growth potential
Enter new markets: Targeted the Chinese market and viewed
listing on the KOSDAQ as a point of entry
Succession planning: Saw an IPO listing as a way to create
greater business transparency; succession planning as Mr. Kim does
not intend to pass the business to his children
Capital Raised: $11.6 million
Shares Issued: 1.85 million
Price: $6.26 per share
Background
Company Description
KRX Listing Rationale
Management
Pricing
Operating Performance
New Pride Logistics
Note: USD 1 = KRW 1,200
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Foreign Listing: Stock Price Performance
22
Foreign listings have performed well since their initial KRX
IPO
Stock Price Performance
A majority of foreign issuers have realized an increase in
equity value since listing on the KRX
The average stock price has increased 5% since the issuance
date
US-based New Prides underperformance is driven by several
internal operational factors:
(1) Sales underperformance, (2) lower operating margins given
increased raw material costs (e.g., rubber); (3) weak outlook for
the truck freight industry
Price History Issuance Price : %change Market Cap
Foreign Company IPO Date IPO
Issuance Next Day
Close 02/24/2012
Next Day Close
Current IPO Funds (US$ mm)
Shares (mm)
Current Market Cap (US$ mm)
Wanli International 2011-June
$3.40 $2.70 $3.90 -20% 13% $42 12 $192
Kalao Holdings 2011-Oct $4.0 0
$5.20 $8.30 29% 108% $47 12 $318
East Asia Sports 2009-May $4.20
$3.20 $2.20 -23% -48% $25 23 $179
New Pride 2010-Apr
$6.30
$7.70 $1.90 24% -70% $12 2 $13
China King-Highway 2010-Mar na
$2.90 $2.30 na na $74 80 $179
China Hao Ran 2010-Feb
$3.90
$3.80 $2.40 -4% -39% $39 40 $95
China Engine 2009-Dec na
$5.70 $3.50 na na $50 40 $134
China Ocean Resource 2009-May
$2.60
$6.80 $4.30 165% 65% $44 17 $320
Average: 28% 5% $42 28 $179
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VI. Listing Process and Requirements
23
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Listing Process
24 Source: Korea Exchange: IPO Guide for Foreign Companies
6 months to
1 year Prep.
Within 2 Months
Eligibility Review
1 to 1.5 Months
Public Offering
Within 7 Days Listing
Application for Listing Eligibility Review
Listing Committee deliberates
Notification of results
Select investment bank to manage process
Appoint auditing firm
Corporate organization and preparation
Due diligence
File securities registration statement
Investor Relations meetings
Determine demand and pricing
Remittance of funds to issuers account
Application for Initial listing
Listing approval notification
Listing ceremony followed by trading of shares on KRX
The KRX listing process can take 4 6 months following the
preparation process
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25
Positive income from ongoing business before tax in the latest
fiscal year and $3 million (KRW 3 bn) in shareholders equity
$9 million (KRW 10 bn) in Sales and Market Capitalization of $27
million (KRW 30 bn), OR
$2 million (KRW 2 bn) in Net Income, OR
10% Return on Equity (Net Income / Equity Capital)
5 years of operating history
Globally recognized auditing firm
Largest shareholder must hold shares for one year after
issuance; after 6 months can sell 5% of shares monthly
Financial
Operational
Summary Key Minimum KRX Listing Requirements
KOSDAQ: Minimum Requirements:
Note : USD 1 = KRW 1,125
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Listing Requirements for IPO Candidates
26
Description Lists mid- to large cap, blue chip stocks
Lists small- and medium sized companies with growth
potential
Operating History
At least 3 years At least 3 years
Size (min. requirements)
Shareholders Equity: KRW 10 bn, OR
Market Capitalization: KRW 20 bn
Shareholders Equity: KRW 3 bn, OR
Market Capitalization: KRW 9 bn
Operating Performance (min. requirements)
Must satisfy 1 of 3 operating requirements
Sales & Income
1. Sales: KRW 30 bn in current year; 3-year average of KRW 20
bn, AND
Earnings : must have realized an operating profit, a profit
before income tax from continuing operation and a current net
income
Income must satisfy 1 of 3 income requirements:
a. Income: (i) KRW 2.5 bn current year and (ii) KRW 5.0 bn for
sum of last 3-years
b. ROE: (i) 5% in current year and (ii) 10% for sum of last
3-years
c. If equity cap exceeds KRW 100 bn: (i) 3% ROE or KRW 5 bn of
income for current year; (ii) positive operating cash flow
2. Sales & Market Cap
Sales: KRW 50 bn (current), KRW 100 bn in market cap
3. Sales, Market Cap, & Operating Cash Flow
Sales: KRW 70 bn (current); KRW 50 bn market cap; KRW 2 bn
operating cash flow
Must satisfy 1 of 3 operating requirements
1. ROE: 10% (Net Income/Equity Capital)
2. Net income: KRW 2 bn
3. Sales: KRW 10 bn in current year and market cap of KRW 30
bn
Capital cant be impaired at end of fiscal year
Positive income from ongoing business before tax (current)
KOSPI KOSDAQ
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Listing Requirements for IPO Candidates (contd)
27
KOSPI KOSDAQ
Description Lists mid- to large cap, blue chip stocks
Lists small- and medium sized companies with growth
potential
Share Distribution At least 1,000 individual shareholders
Share distribution to satisfy 1 of 4 requirements:
1. Minority shareholders must hold at least 20%
2. At least 25% offered publicly
3. Issue minimum of 1 mm shares with either KRW 50 bn equity
capital or KRW 100 bn market capital; 10% offered to public
4. If offering in Korea and abroad: 10% must be offered publicly
and 1 mm shares must be offered in Korea
At least 500 minority shareholders
Share distribution to satisfy 1 of 5 requirements:
1. Minority shareholders must hold at least 25%, or at least 10%
must be offer publicly
2. Issue minimum of 1 mm shares with either KRW 50 bn equity
capital or KRW 100 bn market capital; 10% offered to public
3. If listed on foreign securities, 300,000 shares must be
publicly offered in Korea
4. At least 25% must be offered publicly
5. If offering in Korea and abroad: 20% must be offered publicly
and 300,000 shares must be offered in Korea
Auditors Opinion Unqualified for current year Unqualified for
current year
(Initial Listing) US or Korean GAAP or IFRS financial
statements
Audit from world class (e.g., Big 4) accounting firm
If a Foreign Auditor: 5 yr operating history; 50 members of CPA;
sales of KRW 10 bn; audit quality management contract (100 member
country, 100,000 member CPA)
Share Transfer No restriction placed on transfer of shares No
restriction placed on transfer of shares
Change of Largest Shareholder
No change of largest shareholder for one year period prior to
application
No change of largest shareholder for one year period prior to
application
Lock-up Period Largest shareholder: 6 months Largest
shareholder: 1 year; after 6 months 5% of shares can be disposed
monthly
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28
Annual Report: within 120 days of fiscal year end
Quarterly Report: within 60 days of end of quarter
Material information: e.g., matters pertaining to business
operation, credit and liability, investment, profit/loss, lawsuits,
relationships between holding companies and subsidiaries
Disclosure of results that the KRX releases about rumor, news
and sudden change in stock price or trading volume
Future business plans, earnings forecasts are disclosed publicly
prior to disclosing to a selected person
Disclosure of events: merger, share swap, business takeover or
transfer, buyback or disposal of treasury stock
Disclosure of any matters that could have significant influence
on an investors investment decision, that the company makes
voluntarily
Periodic Disclosure
Fair Disclosure
Notable Events
Disclosure
Timely Disclosure
Voluntary Disclosure
Special Disclosure
Ongoing Disclosure