General

Prior to April 1, 1999, investments in Korean securities by non-residents and issuance of securities outside of Korea by Korean companies had been regulated by the Foreign Exchange Management Act and the Presidential Decree and regulations thereunder (collectively the Foreign Exchange Management Laws). As of April 1, 1999, the Foreign Exchange Management Laws were abolished and the Foreign Exchange Transaction Act and the presidential Decree and regulations thereunder (collectively, the Foreign Exchange Transaction Laws) were enacted. Under the Foreign Exchange Transaction Laws, many restrictions on foreign exchange transactions have been deregulated and many currency and capital transactions have been liberalized.

However, Korean government has instituted certain measures to curb capital flight and international money laundering which may result from liberalization of capital transfers.

Under the Foreign Exchange Transaction Laws, if the Korean government deems that certain emergency circumstances, including, but not limited to, sudden fluctuations in interest rates or exchange rates, extreme difficulty in stabilizing the balance of payments or a substantial disturbance in the Korean financial and capital markets, are likely to occur, it may impose any necessary restrictions such as requiring foreign investors to obtain prior approval from the Minister of Finance and Economy (MOFE) for the acquisition of Korean securities or for the repatriation of interest, dividends or sales proceeds arising from Korean securities or from disposition of such securities, provided, however, that certain foreign investments made under the Foreign Investment Promotion Act shall not be subject to the foregoing restrictions.

The Securities Exchange Act, which regulates issuance and exchange of securities publicly traded in Korea, was amended several times from April 1997 to internationalize the system for issuing and distributing securities and the systems for mergers and acquisitions of businesses, to enhance the autonomy of the securities industry through deregulations and to strengthen the independence of auditors and the protection of minority shareholders. For instance, the amendments made the tender offer requirements more specific by requiring a tender offer 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 the Korea Stock Exchange or KOSDAQ from a certain number of persons, enhanced the rights of minority shareholders, required inclusion of outside directors in the board of directors for improvement of corporate governance, repealed the limitation for the acquisition of its own shares by a listed company, and permitted the payment of interim dividends by companies listed on the Korea Stock Exchange or registered with the KOSDAQ if provided for in their articles if incorporation.

Under the Securities Exchange Act, when an investor acquires 5% or more of total issued shares of a listed corporation, the investor is required to file a report to the Financial Supervisory Commission and Korea Stock Exchange 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 the Financial Supervisory Commission and Korea Stock Exchange within 5 days of the occurrence of the changed shareholding.

Acquisition of Shares by Foreigners

Under the Foreign Exchange Transaction Laws, the Securities Exchange Act, and regulations of the Financial Supervisory Commission (collectively the Securities-Related Laws), foreigners are permitted to invest, with certain exceptions and subject to certain procedural requirements, in all shares of Korean companies unless prohibited by specific laws. Foreign investors may trade shares listed on the Korea Stock Exchange or registered on the Korea Securities Dealers Association Automated Quotation system (KOSDAQ) only through the Korea Stock Exchange or through the KOSDAQ except in limited circumstances, including share acquisition under the Foreign Investment Promotion Act, acquisition of shares by exercise of warrants, conversion right under convertible bonds or withdrawal right under depositary receipts issued outside of Korea by a Korean company, acquisition of shares as a result of exercising applicable conversion rights attached to certain eligible domestic convertible bonds issued by listed companies, acquisition of shares as a result of inheritance, donation, bequest or exercise of shareholder rights (including preemptive rights or rights to participate in free distributions and receive dividends).

The Securities-Related Laws require a foreign investor who wishes to invest in shares on the Korea Stock Exchange or the KOSDAQ to register its identity with the Financial Supervisory Service prior to making any such investment. Upon registration, the Financial Supervisory Service will issue to the foreign investor an Investment Registration Card which must be presented each time the foreign investor opens a brokerage account with a securities company. Foreigners eligible to obtain an Investment Registration Card include foreign nationals who are individuals, foreign governments, foreign municipal authorities, foreign public institution, international financial institutions or similar international organizations, corporations incorporated under foreign laws and any person in any additional category designated by the decree of the MOFE.

Upon a foreign investor’s purchase of shares through the Korea Stock Exchange or the KOSDAQ, no separate report by the investor is required because the Investment Registration Card system is designed to control and oversee foreign investment through a computer system.