Improve Korea Proposals to the Korean Government and the National Assembly of Republic of Korea
IMPORTANT DISCLOSURES This presentation is published by Dalton Investments LLC solely for informational purposes and is not, and may not be construed as, investment, financial, legal, tax or other advice. This presentation has been compiled based on publicly available information (which has not been separately verified by Dalton Investments) and does not: (i) purport to be complete or comprehensive; (ii) constitute an agreement, offer, a solicitation of an offer, or any advice or recommendation to enter into or conclude any transaction or take or refrain from taking any other course of action (whether on the terms shown herein or otherwise); or (iii) constitute proxy solicitation or any other similar form of activity, or any advice or recommendation to take or refrain from taking any action or do or refrain from doing any act which would otherwise constitute proxy solicitation or any other similar form of activity. The market data contained in or utilized for the purposes of preparing this presentation is (unless otherwise specified) as at the end of trading hours on December 31, 2018. Changes may have occurred or may occur with respect to such market data and we are not under any obligation to provide any updated or additional information or to correct any inaccuracies in this presentation. The information herein contains “forward - looking statements.” Specific forward -looking statements can be identified by the fact that they do not relate strictly to historical or current facts and include, without limitation, words such as “may,” “will,” “expects,” “believes,” “submits,” “ ant icipates,” “plans,” “estimates,” “projects,” “targets,” “forecasts,” “seeks,” “could” or the negative of such terms or other variations on such terms or compa rable terminology. Similarly, statements that describe objectives, plans or goals are forward-looking. Any forward-looking statements are based on current intent, belief, expectations, estimates and projections. These statements are not guarantees of future performance and involve risks, uncertainties, assumptions and other factors that are difficult to predict and that could cause actual results to differ materially. Accordingly, you should not rely upon forward-looking statements as a prediction of actual results and actual results may vary materially from what is expressed in or indicated by the forward-looking statements. Many of the statements in this presentation are our beliefs, which are based on its own analysis of publicly available information. Any representation, statement or opinion expressed or implied in this presentation is provided in good faith but only on the basis that no reliance will be placed on any of the contents herein. You should obtain your own professional advice and conduct your own independent evaluation with respect to the subject matter herein. We expressly disclaim any responsibility or liability for any loss howsoever arising from any use of or reliance on this presentation or its contents as a whole or in part by any person, or otherwise howsoever arising in connection with this presentation. In respect of the information and materials which have been prepared by us and contained herein, in the event of any inconsistency between the English language version and the Korean language version, the meaning of the English language version shall prevail. Jan 2019 Page 1
IMPORTANT DISCLOSURES This document is provided for informational purposes only, and does not constitute a solicitation of any shares in any investment vehicle managed by Dalton Investments LLC. Such solicitations can only be made to qualified investors by means of the private placement memorandums, which describe, among other things, the risks of making an investment. Additionally, this presentation does not constitute investment advice of any kind. All of the information in this document relating to Dalton Investments LLC or its affiliates (collectively, “ Dalton ” or the “ Firm ”) is communicated solely by Dalton, 1601 Cloverfield Boulevard, Suite 5050 N, Santa Monica, CA 90404, regulated by the U.S. Securities and Exchange Commission (SEC). SEC registration does not imply SEC endorsement. No representation or warranty can be given with respect to the accuracy or completeness of the information, or with respect to the terms of any future offer of transactions conforming to the terms hereof. Certain assumptions may have been made in the analysis which resulted in any information and returns/results detailed herein. No representation is made that any results/returns indicated will be achieved or that all assumptions in achieving these returns have been considered or stated. Additional information is available on request. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on market conditions. Unless otherwise indicated, figures presented are preliminary, unaudited, subject to change and do not constitute Dalton’s standard books and records. Any estimates, projections or predictions (including in tabular form) given in this communication are intended to be forward-looking statements. Although Dalton believes that the expectations in such forward-looking statements are reasonable, it can give no assurance that any forward-looking statements will prove to be correct. Such estimates are subject to actual known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those projected. These forward-looking statements speak only as of the date of this communication. Dalton expressly disclaims any obligation or undertaking to update or revise any forward-looking statement contained herein to reflect any change in its expectations or any change in circumstances upon which such statement is based. Jan 2019 Page 2
Recommendations to Korean Government & National Assembly I. Tax (i): reduce taxes on dividends, inheritance and gifts • Reduce the income tax rate on dividends o Dividends are taxed as part of overall income; for high income-earning individuals, the rate is 42% when income exceeds 500 million Korean Won. High taxes on dividends make them less attractive as a means to distribute wealth to shareholders. o In Hong Kong and the United States, dividend income is taxed at 0% and 23.8%* maximum, respectively. • Reduce inheritance and gift tax o The maximum inheritance tax in Korea is 65%. The high inheritance tax creates a moral hazard because major shareholders are incentivized to keep stock prices low to minimize taxes. *For qualified dividends; the payee must own the stock for a long enough time, generally 60 days for common stock and 90 days for preferred stock and the dividend must also be paid by a corporation in the U.S. or with certain ties to the U.S. Jan 2019 Page 3
Recommendations to Korean Government & National Assembly I. Tax (ii): tax relief for long-term equity investments • Tax support for long-term equity investment o In the United States, the tax rate on investments held for more than one year drops to (a maximum of) 20% from (a maximum of) 37% for investments held for a shorter period of time. We recommend doing the same thing in Korea: reducing the tax rate on investments held for more than one year. o Reducing taxes on long term investments would support long-term equity funds. Jan 2019 Page 4
Korean Investors Have Tended to Invest Very Short-term Equity Institutional Trading Volume Composition Investors’ Average Holding (Jan. 2018~ Jul. 2018) Period Estimates (Months) Korean Individuals Others 48 32% 19 Mostly day 68% traders 6 Korea Global Estimated optimal Trading Volume Source: Korea Financial Investment Association – FreeSis; Korea Exchange – Market Data; Mercer – The Long and Winding Road Jan 2019 Page 5
Recommendations to Korean Government & National Assembly II. Amendments to Commercial Statutes: An urgent need for change We recommend a prompt review and enactment of the pending amendments to the domestic commercial statutes, including making the electronic voting system and the cumulative voting system mandatory, and requiring the separate election of an audit committee to check the power of major shareholders. • The 2018 electronic voting adoption rate was 26%; the cumulative voting adoption rate was 4%; and the rejection rate of management proposals at the board of directors meeting was 0.4%. Each of these figures is extremely low. Break the logjam of pending amendments to the domestic commercial statutes o Implementing electronic voting would allow more shareholders to easily exercise their voting rights. o Cumulative voting: be careful of staggering the voting period as it could corrupt true cumulative voting. o Separate election of an audit committee: voting rights of the largest shareholders should be limited to secure the independence of audit committee members. Jan 2019 Page 6
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