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Opportunities in Korea
for Foreign Financial Investors
1
Sung Il Park, Director, Invest KOREA
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AGENDA
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Key Drivers: Growth Potential
Korea’s ability to rebound from a crisis was proven once again as the country
bounced back stronger than ever in 2010….
#1 Semiconductor (43.8%)
#1 Display (52.2%)
#5Automobiles (14.7%)
#2 Mobile (29.2%)
#6 Steel (4.9%)
4
GDP Growth6.1%
Stock Exchange Growth 21.5%
Export Growth28.6%
…further increasing market shares in a range of industries.
#2 Shipbuilding (37.9%)
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“In addition to BRICs, we have to see the rise of Mexico, Indonesia, Korea
and Turkey („MIKT‟). Even among MIKT economies, Korea looks outstanding
in terms of growth potential ahead.”
- Jim O’Neill, Chairman of Goldman Sachs Asset Management and creator of the term BRICs -
5
Korea ranks the top in 2010 Goldman Sachs Growth Environment Scores,
a measurement of the long-term sustainability of growth.
Korea: 7.5
Mexico: 5.2
Indonesia: 4.7
Turkey: 5.1
Average of BRICs: 4.9
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Key Drivers: Strengthening Deal Flow
6
Growth capital and influential minority- Sale of minority stake to finance globalization
Forced Restructuring- Divestment of distressed companies or assets
- Banking sector restructuring
Unforced Restructuring- Divestment of non-core businesses by
domestic and foreign business conglomerates
Owner’s Cash-out- Sale of companies for owners’ cash-out
or family succession
Secondary Buyouts- Sale of portfolio companies held by PE
Privatizations & Post Restructuring- Privatization of state owned companies
- Government sale of once-distressed companies
Diversified deal sources are spurring the market.
While the general perception and awareness of private equity is improving.
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7
Key Drivers: Emerging Industries Looking for Growth Capital
Industry PE Investment Driving Force
CleantechGoldman Sachs invested U$117 mil. in
wind power companies CS Wind and
PyeongSan (2008-9)
• Strong government support as part of
Green Growth 5-year Plan
HealthcareTemasek acquired a 10% stake in
biopharm firm Celltrion for U$257 mil.(2010)
• Aging population – fertility rate lowest
in OECD
• Convergence of ICT and medicine
EducationRiverside acquired Wiz Korea a pre-
school education franchise (2008)
• Highest per capita spending on
private education in OECD
Equipment,
Parts &
Materials
Partners Group invested in tire mold and
drum manufacturer Saehwa IM (2011)
• Globally competitive companies in
supply chains of Samsung, Hyundai
& LG
Contents &
Media
Macquarie & MBK Partners jointly
acquired a 49% stake in cable TV
operator C&M for U$2 bil. (2008)
• Extremely high broadband & mobile
penetration
• Consolidation expected in
broadcasting industry
Financial /
Services
Carlyle Group acquired a stake in HKucar
Global a nationwide used car dealership
network (2010)
• Productivity only 60% of developed
nations
• KORUS FTA
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Deal Flow Forecasts for the Year Ahead
8
• Large-cap buyouts becoming more scarce
• Expect more small to mid-market deals and minority stake investments
• Deal sourcing capability will be more important
• Portfolio value creation will tell the ultimate winners
(Market Observation)
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Key Drivers: Exit - M&A
9
Target Company Seller Buyer Invested Exit Exit Multiple
Korean First Bank New Bridge Standard Chartered 1999 2005 3.3
Landmark Morgan Stanley ING Group 2002 2007 3.5
C&M Communications Goldman Sachs Macquarie 2004 2007 5.5
KSNet H&Q Net 1 2007 2010 3.5
The Faceshop Affinity LG H&H 2005 2010 5.3
Unlike other Asian markets, Korea has provided real exit returns for foreign PE investors,
Average Holding Period:4.1 Years
Average Exit Multiple:2.46
…however competition from foreign private equity firms is still dramatically less
compared to both developed and developing markets in Asia.
Korea boasts an active M&A market, with 288 deals (+51%) worth US$ 39 bn (+36%)
completed in 2010.
(Source: Mergermarket)
(Based on the available multiples of 19 of the foreign PE exits since 2005)
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Key Drivers: Exits - IPO
10
IPO Volume in Korea (U$mil)
This year 11 companies with sales exceeding U$1 billion will go public
• The National Pension Service recently amended its internal policy to participate in IPOs
• First SPAC listed in March 2010, total IPO value: U$510 million.
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Key Drivers: Open Business Environment
11
Under the Foreign Investment Promotion Act -
• Foreign investment for ownership control can be made into 97.4% of industries
(1,055 out of 1,083)
※ Protected categories include food crop, fishing, power supply, broadcasting, telecommunication, etc
• Foreign investors can repatriate their money even in case of force majeure
• Korea’s top financial regulator the FSC is seeking to relax rules related to the
setting up and operation of private equity funds in order to bring existing
regulations closer to the international norm.
Amendments to the Financial Investment Services and Capital Markets Act -
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12
■ Introduction of IFRS by all listed companies in 2011
- Even before IFRS, Korea had a highly transparent accounting system with the financial
information of private and public companies readily available
“Within seconds, I can get Korean stock exchange information, annual and
even quarterly information” – Warren Buffett
■ Fair Judicial Environment
- Independent, fair judges, reliable legal framework
- Contracts enforceable
Korea boasts a highly transparent financial and legal system, and common
acceptance of Western shareholder agreements.
Key Drivers: Transparency
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‘On the Ground’ Support for Foreign Investors
14
Invest KOREA has the government mandate to facilitate investment from
overseas financial investors
Services Details Example
Facilitating
Co-Investment
- Providing access to government matching
funds
- Facilitating co-investment with GP/LP
KoFC New Growth Engine Fund
Deal Sourcing- Access to high growth companies through
relationship with industry associations
Excelsior Capital invested in
Galaxia Electronics
Conferences- Regular roadshows and investment
forums providing 1-1 meeting opportunitiesKorea PE & VC Forum
Consulting &
Aftercare
- Advising on FDI, tax and legal issues by
officials dispatched to Invest KOREA from
government organizations
Mahindra & Mahindra’s
acquisition of Ssangyong Motor
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Co-Investment Opportunity: 2011 New Growth Engine Fund
15
■ Korea Finance Corp. invested in 35 funds as a major LP (61.5% stake on
average) in 2010
■ Opportunity to network & co-invest with local partners in Korea
IndustryNumber of GP
sought
Fund size
Total
Funds provided
by KoFC
New Growth
Engine Industries15 3,165 2,074
SMEs 20 3,766 2,191
Total 35 6,931 4,265
(Unit: USD Mil.)
2010 Investment by KoFC
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16
Deal Sourcing: Growth Capital Global Korea Project 2011
Matchmaking
Investment Roadshows Teleconferences Meeting arrangement
Select Eligible Candidates:
Companies with Growth Potential and Good Corporate Governance
Target Company Sourcing (Nine Industry Associations)
- Renewable Energy- Shipbuilding Equipment
- Software
- Biotechnology
- Pharmaceutical- Fine Chemicals
- Industrial Machinery- Electronics
- KOSDAQ
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Conference: Korea Private Equity & Venture Capital Forum
17
Insight
Presentations & discussions on the
most important topics facing
investors in Korea and the region.
Networking
The largest gathering of
institutional and private equity
investors held in Korea.
Deal Sourcing
• 1:1 meetings with Korean
companies & investors
• Closed door IR Presentations
Korea Private Equity & Venture Capital Forum 2011June 1-2, 2011 Grand InterContinental Hotel, Seoul
Information, contacts and deal opportunities all in one place…
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For all the latest news, opportunities and upcoming events,
regarding M&A, private equity, and venture capital in Korea visit
www.InvestKoreaSMEs.com.
Finance Industry Investment Promotion Team,
Invest KOREA
Tel: (+82) 2 3460 7559