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KSD ’ s Infrastructure for Cross-Listing of Foreign Companies

KSD ’ s Infrastructure for Cross-Listing of Foreign Companies. October 18, 2007 Bishkek, Kyrgyzstan Jae Woong (James) Kim. 2. 1. 3. Contents. KSD ’ s International Services. KSD ’ s KDR Depositary Service for Foreign Co. Korean Stock Market. KSD ’ s International Services.

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KSD ’ s Infrastructure for Cross-Listing of Foreign Companies

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  1. KSD’s Infrastructure for Cross-Listing of Foreign Companies October 18, 2007 Bishkek, Kyrgyzstan Jae Woong (James) Kim

  2. 2 1 3 Contents KSD’s International Services KSD’s KDR Depositary Service for Foreign Co. Korean Stock Market

  3. KSD’s International Services One Single Gateway for International Securities Investment Custodian for ADR(GDR) Underlying Shares 국내증권시장 Overseas Market Domestic Companies Primary Market KDR Depositary 국내증권시장 Domestic Market Foreign Companies Foreign Securities Custody & Settlement 국내증권시장 Overseas Market Domestic Investors Secondary Market Domestic Securities Custody & Settlement 국내증권시장 Domestic Market Foreign Investors 1

  4. KSD’s International Services KSD’s Foreign Securities Custody for Domestic Investors USD Billions Global Custody - General Investors : Mandatory - Institutional Investors : Optional Cross-border Clearing Network (32 Markets) Custodian - Euroclear, Clearstream Bank - Citibank, BNY, SSB, Pershing Communication - SAFE21, SWIFT, - Sub-Custodian’s Proprietary S/W 2

  5. KSD’s International Services KSD’s Domestic Securities Custody for Foreign Investors Total Asset under Custody (Sep. 30, 2007) : Equity 122.5 Mil. Shares for 40 Clients Benefits of Custody to KSD Core Services Securities Custody Cash Management Linked with FX Banks Direct A/C Opening & Securities Custody by CSD Investment Registration to Financial Supervisory Service (FSS) + Added Value Services Standing Proxy Securities Lending & Borrowing Tri-party Repo Corporate Actions (Voting Right, Dividend, Bonus Issues, etc.) Communication Web-based Local Custody System / Fax / SWIFT / Telex Communication - SAFE21, SWIFT, Local Custody System 3

  6. KSD’s International Services KSD’s Custody Services for Domestic Companies issuing ADR(GDR) • For domestic companies that issue ADR or GDR • Custody Agreement • Bank of New York • Citibank N.A. • Deutsche Bank Trust Company • JP Morgan Chase • Korean Companies’ ADR & GDR: 43 issues • Market Share of KSD in Korea: 100% • Total Custody Shares: 554 million Mil. Shares 4

  7. KDR Korean Depositary Receipt Companies Migration Establishment Issuing Country Listing Type Listing Schedule Foreign Listing 3NOD X Cayman Korea Share 8. 17. 2007 Non-Listing Huafeng Textile O Cayman Hong Kong KDR November Hong Kong Yonhap Tech. X Hong Kong Korea Share December Non-Listing Cowell E Holdings X Cayman Korea Share December Non-Listing X French ETF France France ETF December Euronext STX Pan Ocean O Korea Singapore Share December Singapore Nepro IT O Japan Korea KDR 2008 Non-Listing KSD’s International Services KSD’s KDR Depositary service for Foreign Companies • KDR is issued by KSD based on original shares issued by foreign companies KSD is the only depositary that can issue KDR in Korea pursuant to the Securities Exchange Act and its Enforcement Decree • Foreign Companies’ Listing to Korean Market 5

  8. KDR Issuance KSD’s KDR Depositary Service for Foreign Companies Overseas Korea Securities Report FSS Underwriting Agreement Issuing Co. Lead Manager Subscription Handling Co. Issuance of Original Shares Issuance of KDR Custodian KDR Distribution Listing Application KRX Notification of Listing Deposit Agreement Investors KDR Depositary (Primary Market) CSD (Secondary Market) KSD Custody Agreement 6

  9. KDR Trading & Settlement KSD’s KDR Depositary Service for Foreign Companies KRX Seller Buyer Seller Seller Trading KSD Settlement Seller’s a/c Buyer’s a/c Korea Overseas Custodian * No Changes in KSD a/c KSD’s a/c 7

  10. KDR Conversion & Cancellation Share Price KDR Price KDR가격 KDR가격 KDR Price Share Price Share Conversion into KDR KDR Selling Share Selling KDR Cancellation to Shares KSD’s KDR Depositary Service for Foreign Companies Arbitrage Trading • KDR Conversion & Cancellation takes 2 ~ 3 business days 8

  11. Share Conversion into KDR: KDR Price > Share Price KSD’s KDR Depositary Service for Foreign Companies 1. Application of KDR Conversion Shareholder 2. Instruction of KDR Receipt Overseas Agent Korean Agent 4. Request for KDR Issuance 6. KDR Issuance & KDR a/c Credit 3. Share Transfer to KSD a/c & Application of KDR Conversion 5. Notification of Share Receipt & Request for KDR Issuance Custodian 9

  12. KDR Cancellation to Share: Share Price > KDR Price KDR Holder KSD’s KDR Depositary Service for Foreign Companies 2. Instruction of Share Receipt 1. Instruction of KDR Cancellation Overseas Agent Korean Agent 3. Request for KDR Cancellation 7. KDR a/c Debit 5. Share Transfer 4. Instruction of Share Transfer Custodian 6. Confirmation of Share Transfer 10

  13. Economic Benefit of KDR Issuance KSD’s KDR Depositary Service for Foreign Companies ◈ Liquidity Premium of DR Issuing Companies Cross-listing by listing ADRs Cross-listing by listing GDRs Non Cross-listing by listing ADRs 33% 14% 224% • Craig Doidge, G. Andrew Karolyi, & Renee M. Stulz, “Has New York become less • competitive in global market? Evaluating foreign listing choices over time” • (Dice Center working paper, April 23, 2007), Analysis between 1997 to 2005 • http://www.cob.ohio-state.edu/fin/dice/papers/2007/2007-9.htm 11

  14. Right Exercise of KDR KDR Holder KSD’s KDR Depositary Service for Foreign Companies KDR Holders can exercise rights only through KSD (Depositary) - KDR Holder → Participant → CSD → Depositary → Custodian → Issuing Co. Indirect Right Exercise Direct Right Exercise KDR Holders need to cancel KDRs to shares and exercise as shareholders - Minority Shareholders Right (Shareholder’s right to proposal, etc) 5. Right Exercise Custodian 2-1. Notification of Record Date, etc. 6. Right Exercise 1. Notification of Record Date, etc Disclosure Agent 4. Right Exercise 3. Notification of Right Exercise 2. Notification of Record Date, etc Issuing Co. 12

  15. Index Performance Korean Stock Market P US$ Bil 2,014.09 P (Oct. 2) KOSPI Daily Turnover 55.1% up from 2005 to 2006 year-end KOSPI breaks previous record highs in October 2, 2007, 2,014.09P 13

  16. Position among World Exchanges (2006) 16 834 8 1,689 KRX KRX TSE 5,824 TSE 2,416 SGX ASX 1,829 709 Korean Stock Market (US$ Bil) Market Cap. Trading Value Listed Companies 2 4 TSE 4,614 5 10 1,339 KRX 1,714 7 HKEX 7 13 ASX 13 ASX 1,096 861 832 14 HKEX HKEX 1,173 10 SGX SGX 22 384 180 26 17 • Source: World Federation of Exchanges 14

  17. Listing Benefits of Korean Stock Market Korean Stock Market High Investment Demand - Korean investors’ foreign equity investment increased dramatically Efficient Financing - High Liquidity (US$ Bil, %) Source: World Federation of Exchanges (Dec. 2006) - KRX enjoys high liquidity compared to other competing exchanges - Can raise more capital by issuing additional shares in the market easily Abundant Liquid Capital - Over 580 bil. US$ of short-term deposits looking for investment opportunities 15

  18. Listing Criteria & Procedure Korean Stock Market Listing Requirements * Exempted for secondary listings on main board ** For secondary listings on KOSDAQ, 500 or more minority shareholders & public offering in Korea of 300,000 shares or more 16

  19. Listing Criteria & Procedure Korean Stock Market Listing Requirements * No losses in operating, ordinary, net income ** For large companies, operating cash flow surplus & either ROE 3% or profit of USD 5 Mil 17

  20. Thank You! Contact: Jae Woong KIM (James) Tel: +82 2 3774 3426 Fax: +82 2 3774 3432~5 Email: jameskim@ksd.or.kr 18

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