I. Equity Market Single foreign investors and foreign investors in the aggregate were allowed in early 1997 to acquire beneficial ownership of up to five and 20 percent, respectively, of any class of shares in a company listed on the Korea Stock Exchange. These ceilings were gradually increased to seven and 26 percent respectively, as of November 1997. As of December 12, 1997 the aggregate foreign ownership limit and individual ceiling in respect of the shares of a listed company was raised to 50 percent. Also, the aggregate foreign ownership limit for certain public companies specially designated as having national importance (e.g., POSCO, KEPCO.) was raised from 21 to 25 percent. On December 30, 1997 the aggregate foreign ownership limit was further raised from 50 to 55 percent. Concommitantly it was announced the aggregate foreign ownership limit will be entirely eliminated by the end of 1998 for shares listed on the Korea Stock Exchange. If a Korean company is listed on KOSDAQ or the Korean OTC stock market, the current limits are five percent for individual, and 15 percent for aggregate, foreign shareholdings. For companies qualifying as venture enterprises under the Act on the Promotion of Venture Enterprises, the maximum limit on their foreign ownership may be fixed in their articles of incorporation regardless of the requirements of the Korea Stock Exchange or KOSDAQ. Most venture enterprises are listed on KOSDAQ companies rather than on the Korea Stock Exchange. Hostile mergers and acquisitions of Korean companies by foreigners will be allowed by presidential decree before the end of 1998. Under the Foreign Investment and Foreign Capital Inducement Act currently in effect, the acquisition by a foreigner of 10 percent or more of the shares of a Korean company requires the approval of the board of directors of such company. This 10 percent threshold, though, will be increased to 33 percent. Given that this requirement for a board resolution gives the target company time to prepare against a hostile takeover, it has attracted considerable criticism. Aides close to President Kim Dae-Jung -who took office on February 25, 1998- have announced that it is the new administration's intention to amend or abolish provisions such as this which impede merger and acquisition transactions. In addition, under the current Securities and Exchange Act, if a company acquires more than 25 percent of the shares of another company listed on the Korea Stock Exchange, the acquiring company must purchase at least 50 percent plus one share of such company through public tender offer. As this mandatory public tender offer requirement discourages hostile takeovers, and in view of the new climate which seeks to permit hostile takeovers, the Korean Government plans to abolish tender offer requirements altogether.
II. Bond Market On December 12, 1997 the government allowed foreign investment in guaranteed Korean corporate bonds with a maturity of more than three years, setting aggregate and individual foreign ownership limits at 30 and 10 percent, respectively. All limits on foreign investment in non-guaranteed bonds issued by small- and medium-sized companies have been eliminated. Also, the aggregate foreign ownership limit in respect of non-guaranteed corporate bonds has been increased from 30 to 50 percent. Furthermore, on December 23, 1997 all individual foreign ownership limits in respect of corporate bonds was eliminated, while foreign investment in government bonds, public bonds and special bonds was permitted to an aggregate ownership limit of 30 percent. On December 30, 1997, though, all foreign investment ceilings for the government and public bonds, special bonds and corporate bonds (including short-term bonds with a maturity of less than three years) were eliminated. III. Money Market The government permited unlimited foreign investment in short-term commercial paper and export bills issued by Korean companies from February 16, 1998. Foreign investment in certificates of deposit or other money market instruments will also be permitted by the end of 1998. IV. Corporate Borrowing 1. Cash Loans In order to stabilize the inflow of foreign currency, the government has decided to temporarily liberalize the issuing of long-term cash loans (through commercial loans or the issuance of foreign currency denominated bonds) by private companies, public institutions and local governments by entirely abolishing limits on the purpose of the loans. This measure became effective on December 16, 1997 and will remain in place at least until the end of 1998 at which time it will be reviewed for possible extension. In case of commercial loans, the amount must exceed $1million and the maturity should exceed three years. On December 22, 1997 the government also increased the maximum interest rate imposed by the Interest Limitation Act from 25 to 40 percent, and on January 13, 1998 abolished the Interest Limitation Act itself. 2. Export Financing The government has amended the Foreign Exchange Management Regulations in order to relieve financial difficulties which Korean exporters have faced since last December. For the purposes of stimulating the purchase of export bills, foreign currency purchases by domestic banks resulting from the purchase of such bills in domestic currency were excluded as of January 3, 1998 from the calculation of the foreign currency over-bought position. Previously, foreign banks in countries importing Korean products were subject to no restrictions in opening letters of credit, but those banks were not allowed to buy export bills directly from domestic companies. As of January 9, 1998 foreign banks overseas were allowed to buy export bills directly from domestic companies. Korean laws and regulations governing the financial market are currently in the process of being extensively amended. The amendments are generally geared towards liberalizing and opening the financial market to foreign investment. As this article does not discuss the details of specific characteristics and structure that may be involved in any particular transaction, the foregoing is intended as a general guide only and should not be considered as formal legal advice or a substitute thereof with respect to specific inquiries or issues involving Korean law.
For more details, please contact
 |
The Korean government recently announced its intention to adopt many measures designed to liberalize and open Korean financial markets to foreigners. The Korean government had been implementing a liberalization and market opening plan for the Korean financial market on a step-by-step basis in order to gradually deregulate and liberalize the finance industry, an area traditionally tightly-controlled by the government. Before officially joining the OECD in October 1996, the Korean government announced a number of steps to open the financial markets and actively considered their full liberalization by the end of 2000. Following the adoption of the IMF program in early December 1997, however, the government has further accelerated the process of liberalization and market opening to implement the fund's program and induce foreign capital. Set forth below are certain major measures taken by the government to date since the adoption of the program.
