In case a foreign investor desires to acquire publicly-listed shares of a Korean corporation, under the relevant Korean law, it is normally required for the foreign investor to acquire such shares through the stock market and not outside of the market. However, there are certain exceptions to such requirement, and we briefly discuss those exceptions and related matters thereof below.
We first note that the Securities Exchange Act of Korea (SEA) provides that if and when a foreign investor desires to acquire certain shares of a Korean company listed on KSE or Korea Securities Dealers Automated Quotation (KOSDAQ), the foreign investor is required to acquire the shares only through KSE or KOSDAQ unless the foreign investor obtains permission from the Financial Supervisory Commission of Korea (FSC) for acquisition of the shares outside of KSE or KOSDAQ, as the case may be. FSC would grant such permission to a foreign investor only if the proposed acquisition fits into limited categories, which include a “direct foreign investment” under the Foreign Investment Promotion Act of Korea (FIPA) and a “public tender offer” to an unspecified number of existing shareholders of DHC under Article 21 of SEA.
A “direct foreign investment” under FIPA means a foreign investor’s acquisition of at least 10% of total issued shares of a domestic corporation, or a foreign investor’s acquisition of less than 10% of total issued shares of a domestic corporation accompanied by (i) a secondment of an executive to the domestic corporation or a contract granting such secondment right to the foreign investor, (ii) execution of a supply contract for raw materials or other products for a period of at least a year or more, or (iii) execution of a technology license contract or joint development agreement.
Under SEA, a public tender offer is required where the purchaser and the persons who have a special relationship with the purchaser will hold 5% or more of the total issued and outstanding shares concerned as a result of the purchase of the shares outside KSE or KOSDAQ from at least 10 persons.
So, barring those “foreign direct investment” or “public tender offer” exceptions, any foreign investor desiring to acquire publicly-listed shares in Korea should enter the relevant stock market for such acquisition.
For your information, we also briefly provide below the key regulations for the foreign investors desiring to enter the Korean stock market for acquisition of shares of publicly-listed companies.
(i) Under the Securities Industry Supervision Regulation, a foreign investor who acquires listed securities for the first time will be required to register the investor’s name and other personal data with Financial Supervisory Commission of Korea (FSC).
(ii) Under the Foreign Exchange Transaction Act of Korea (FETA), a foreign resident’s acquisition of a domestic corporation’s securities is regarded as a “capital transaction” and FETA requires the relevant foreign resident to file a report to the minister of the Ministry of Finance and Economy (MOFE) about such transaction.
(iii) SEA requires that when an investor acquires 5% or more of total issued shares of a listed corporation, the investor is required to file a report to FSC and KSE on the share acquisition status within 5 days of the acquisition. In addition, if, after the acquisition, the investor changes its shareholding and the changed shareholding is at least 1% or more of total issued shares of the listed corporation, the investor is required to file a report to FSC and KSE within 5 days of the occurrence of the changed shareholding.
As seen above, from a foreign investor’s standpoint, the regulations concerning acquisition of publicly-listed shares are not easy to understand, and so it would be prudent for such investor to seek advice of a qualified Korean law firm.