Debt capital markets in South Korea: regulatory overview

A Q&A guide to debt capital markets law in South Korea.

The Q&A gives an overview of legislative restrictions on selling debt securities, market activity and deals, structuring a debt securities issue, main debt capital markets/exchanges, listing debt securities, continuing obligations, advisers and documents, debt prospectus/main offering document, timetables, tax, clearing and settlement, and reform.

To compare answers across multiple jurisdictions visit the Debt Capital Markets Country Q&A tool

This Q&A is part of the global guide to debt capital markets law. For a full list of jurisdictional Q&As visit www.practicallaw.com/capitalmarketsdebt-guide.

Contents

Legislative restrictions on selling debt securities

1. What are the main restrictions on offering and selling debt securities in your jurisdiction?

Main restrictions on offering and selling debt securities

For a public offering or public sale of debt securities under which investors must be protected, the issuer must submit a registration statement to the Financial Services Commission. A prospectus reflecting the contents of the registration statement must also be provided to investors when soliciting an offer or making an offer.

Under the Financial Investment Services and Capital Markets Act (FISCMA), "public offering" means the act of soliciting 50 or more investors to acquire newly issued securities, and "public sale" means the act of offering the sale of or soliciting purchase of securities already issued to 50 or more investors (section 9(7) and section 9(9), FISCMA). The obligation to report to the Financial Services Commission is only applicable when the total amount of securities publicly offered or sold is each KRW1 billion or more (section 119(1), FISCMA).

Even if the number of solicited investors is less than 50, it is deemed as a public offering if the securities can be transferred to 50 or more persons within one year of issuance and meet certain requirements. This is known as a "deemed public offering" (section 11(1), Enforcement Decree of the FISCMA; section 2-2(1), Regulations on the Issuance and Disclosure of Securities).

The Financial Services Commission reviews and accepts registration statements. Unless the Financial Services Commission refuses to accept a registration statement during a certain period prescribed under the law, the registration statement will become effective (section 120(1), FISCMA). For an investor to acquire securities with an effective registration statement, an investment prospectus must be delivered to the investor before the acquisition of the securities (section 124(1), FISCMA).

If the total amount of securities publicly offered or sold is less than KRW1 billion and a registration statement need not be filed, an issuer still has certain obligations to report to the Financial Services Commission (section 130, FISCMA).

Restrictions for offers to the public or professional investors

FISCMA categorises investors into two groups:

  • Professional investors. A "professional investor" is an investor with the ability to take risks accompanying the investment in light of expertise it possesses in connection with:

    • the financial investment instruments; and

    • the scale of assets owned.

Professional investors include the Korean government, the Bank of Korea, financial institutions (for example, banks), and stock-listed companies (section 9(5), FISCMA).

  • Non-professional investors. A "non-professional investor," on the other hand, means any investor other than professional investors (section 9(6), FISCMA).

An issuer must provide an investment prospectus to an investor when selling securities (including debt securities), but this is not applicable for professional investors (section 124(1), FISCMA).

 

Market activity and deals

2. Outline the main market activity and deals in your jurisdiction in the past year.

In 2015, KRW123 trillion worth of corporate bonds were newly issued. Among these were 422 cases of issuance of ordinary corporate bonds (that is, corporate bonds other than financial bonds, ABS, bank bonds and so on) amounting to KRW41 trillion, resulting in an increase in the number of cases and a decrease in the total amount of issued bonds compared to 2014.

The issuance of AA grade or above corporate bonds accounted for 77% of all corporate bonds issued, indicating the increasing tendency to prefer lower-risk assets in the bond market.

From January to July 2015, the total amount of convertible bonds issued by companies listed on the Korea Composite Stock Price Index (KOSPI) and the Korean Securities Dealers Automated Quotations (KOSDAQ) markets of the Korea Exchange (KRX) amounted to KRW13,965 billion, which is a 22.39% increase from the previous year.

For the same period, warrant bonds issued amounted to KRW99 billion, which is a 202% increase from that of the previous year.

In Korea, depositary receipts with traits of a debt security are rarely issued.

The major corporate bond issuance cases of 2015 largely involved financial institutions and include the following cases:

  • Shinhan Bank in the total amount of approximately KRW9 trillion.

  • Hana Bank in the total amount of approximately KRW5 trillion.

  • Woori Bank in the total amount of approximately KRW5 trillion.

  • KB Kookmin Bank in the total amount of approximately KRW4 trillion.

  • Shinhan Card Co Ltd in the total amount of approximately KRW3 trillion.

 

Structuring a debt securities issue

3. Are different structures used for debt securities issues to the public (retail issues) and issues to professional investors (wholesale issues)?

The issuance of debt securities involves either a public offering or private placement. In a public offering, debt securities are issued to an unspecified number of investors (50 or more), while private placement is a method where an issuing company sells debt securities by directly negotiating with specific investors.

The private placement method is chosen over public offering when either:

  • A public offering is difficult due to the lack of an underwriter.

  • Only a small amount of debt securities are issued for the funding of short-term operating funds.

Prompt issuance of debt securities is guaranteed under private placement as the submission of a registration statement is not required. Since issuance of private placement bonds is similar to extending a loan, in most cases, investors are either banks or insurance companies.

Apart from the regulatory differences between public offering and private placement, there are no fundamental structural differences between the two. While private placement agreements are generally more protective of investors (for example, by including an acceleration clause), it is difficult to see this as a structural difference between public offering and private placement.

 
4. Are trust structures used for issues of debt securities in your jurisdiction? If not, what are the main ways of structuring issues of debt securities in the debt capital markets/exchanges?

Although it is theoretically possible to use trust structures for the issuance of debt securities in Korea, except for limited cases (for example, issuance of secured bonds under the Secured Bond Trust Act), trust structures are rarely used.

In the case of a debtor with a very high credit ranking (for example, the Korea Development Bank), debt securities are directly issued by the debtor and the debtor bears all of the risk (that is, any unsubscribed amount of debt securities). However, most corporate bonds are indirectly issued where an underwriter first acquires the relevant corporate bonds for its own account and then resells them to investors.

 

Main debt capital markets/exchanges

5. What are the main debt securities markets/exchanges in your jurisdiction (including any exchange-regulated market or multi-lateral trading facility (MTF))?

Main debt markets/exchanges

An "ordinary debt securities market" operated by the KRX is a market where bonds registered with the KRX are traded, for example:

  • Government bonds.

  • Municipal bonds.

  • Bonds issued by special laws.

  • Corporate bonds.

There are no limitations to the market participants, that is, all investors can participate, and mostly corporate bonds and equity-related instruments are traded (for example, convertible bonds, warrant bonds and exchangeable bonds). The KRX provides the quotation of market value of the debt securities exchanged at the ordinary debt securities market on its website www.krx.co.kr.

Apart from the ordinary debt securities market, other markets include:

  • The KTS (KRX Trading System for Government Securities) market for the trading of government bonds.

  • The Repo market for the trading of repurchase agreements.

  • The small bond market for the trading of

    • national housing bonds;

    • Seoul metropolitan city subway bonds; and

    • provincial development bonds.

The over-the-counter market is a market without a centralised mechanism and trading occurs unsystematically, unlike a regular exchange market. Trading of securities at over-the counter markets happens through private networks (that is, between employees of financial institutions) on a one-on-one basis.

Approximate total issuance on each market

In 2015, based on the entire amount of debt securities traded (including government bonds, bond issued by special laws and corporate bonds), exchange trading accounted for KRW1,762 trillion (25.2%) and over-the-counter trading accounted for KRW5,231 trillion (74.8%). For corporate bonds, exchange trading accounted for only 1.9% and over-the-counter trading accounted for 98.1%.

 
6. What legislation applies to the debt securities markets/exchanges in your jurisdiction? Who are the main regulators of the debt capital markets?

Regulatory bodies

The debt securities market of the KRX is regulated by:

  • The Financial Services Commission.

  • The Financial Supervisory Service.

  • The Korean Exchange.

The Financial Services Commission reviews registration statements submitted, and if needed, requests for additional reports, conducts investigation, and imposes sanctions (section 120, section 131, Financial Investment Services and Capital Markets Act (FISCMA); Enforcement Decree of the FISCMA, Table 20). The KRX establishes regulations related to initial public offering (IPO), disclosure, business operations, and has a market audit committee to investigate suspicious trading activities and/or members and to resolve disputes (sections 386 to 401, FISCMA).

Legislative framework

Trading activities at the KRX debt securities market is regulated by the:

  • FISCMA.

  • Korean Composite Stock Price Index (KOSPI) Market Business Regulation (regulations on securities traded at the KRX) and its enforcement rules.

  • Regulations on the Issuance and Disclosure of Securities (a notification by the Financial Services Commission) and its enforcement rules.

 

Listing debt securities

7. What are the main listing requirements for bonds and notes issued under programmes?

Main requirements

The listing requirements for bonds are the following (section 88, Korean Stock Price Index (KOSPI) Market Listing Regulation):

  • The capital stock of the applicant for initial listing must be KRW500 million or more (not applicable to guaranteed corporate bonds, secured corporate bonds, covered bonds, asset-backed securities and non-standard ABS).

  • Must have been issued by a public offering or a secondary distribution.

  • Total denomination of bonds issued must be KRW300 million or more (KRW50 million or more for guaranteed corporate bonds, secured corporate bonds and covered bonds).

  • Total denomination of bonds unredeemed must be KRW300 million or more (KRW50 million or more for guaranteed corporate bonds, secured corporate bonds and covered bonds).

  • Must be issued on uniform securities certificates (meaning a securities certificate using a uniform certificate form as decided by the Korea Securities Depository) and must be securities issued according to the Handling Regulations on Uniform Securities Certificates (not applicable to registered bonds).

  • Convertible bonds must be registered bonds (meaning a bond that has not been physically issued but has its information registered at a designated registrar).

  • In the case of non-standard ABS, it must meet all of the requirements specified in each of the following:

    • the owner of the asset is the person prescribed in the Enforcement Rules of KOSPI Market Listing Regulation (that is, a bank or a financial investor);

    • it receives credit ratings of AAA-grade from at least two of the credit rating agencies;

    • the methods of asset transfer follow each of the subparagraphs under Article 13 of the Asset-Backed Securitization Act; and

    • the total par value of the issued bonds does not exceed the total value of the assets that have been transferred for securitisation.

Minimum size requirements

See above, Main requirements.

Trading record and accounts

There are no specific requirements for trading records and accounts.

Minimum denomination

Since there is not a direct limitation on the denomination of bonds, a minimum denomination requirement does not exist for registered bonds.

However, since there are only eight types of corporate certificate forms for uniform securities certificates, the minimum denomination of corporate bonds using uniform securities certificates can be seen as KRW10,000. The eight types of corporate certificate bonds are denominated in the pricing units of (section 3, Enforcement Rules of the Handling Regulations of Uniform Securities Certificates):

  • KRW10,000.

  • KRW1,000,000.

  • KRW5,000,000.

  • KRW10,000,000.

  • KRW50,000,000.

  • KRW100,000,000.

  • KRW1,000,000,000.

 
8. Are there different/additional listing requirements for other types of securities?

The required minimum paid-in capital, the total denomination of bonds issued and the total denomination of bonds outstanding are different for guaranteed corporate bonds, secured corporate bonds and asset-backed securities (see Question 7). Convertible bonds must also be registered bonds.

The following are the listing requirements for bonds issued by foreign companies (section 95, KOSPI Market Listing Regulation):

  • The capital amount for the recent fiscal year-end must be KRW10 billion or more (excluding non-controlling shares from the total capital amount on the company's consolidated financial statement), and the company must not have impaired capital (however, this requirement is not applicable to guaranteed corporate bonds, secured corporate bonds, ABS and debt securities issued by international financial institutions or foreign governments).

  • Registrant must be any of the following (not applicable to guaranteed corporate bonds, secured corporate bonds, asset-backed securities and debt securities issued by international financial institutions or foreign governments):

    • a company whose securities are issued in a foreign country and listed on a foreign exchange;

    • a company whose securities are issued in a foreign country and listed on the KOSPI market or the Korean Securities Dealers Automated Quotations (KOSDAQ) market; or

    • a company that has issued securities through public offering or a secondary distribution.

  • Bonds must be issued through public offering or a secondary distribution under FISCMA.

  • Total denomination of bonds issued must be KRW300 million or more (KRW50 million or more for guaranteed corporate bonds and secured corporate bonds).

  • Total denomination of bonds outstanding must be KRW300 million or more (KRW50 million or more for guaranteed corporate bonds and secured corporate bonds).

  • The bonds issued must be registered.

  • The bonds issued must have received a rating of BBB-grade or above from a credit rating agency

Foreign companies can negotiate the listing procedures and period with the KRX before submitting an application for listing securities (section 94, KOSPI Market Listing Regulation). They must also appoint a representative (a person that has an address or residence in Korea) to represent and act as an agent before the KRX (section 14, KOSPI Market Listing Regulation).

 

Continuing obligations: debt securities

9. What are the main areas of continuing obligations applicable to companies with listed debt securities and the legislation that applies?

A company with listed debt securities must submit a business report and a report on material facts (for example, transfer of an essential business or asset) when applicable. Additionally, the company must report changes to the listed securities, for example the exercise of rights relating to equity-related instruments and the early repayment of debt.

Submission of business reports, semi-annual reports and quarterly reports

A company with listed debt securities must submit a business report within 90 days of the closing of its business year to the Financial Services Commission and the KRX (this includes semi-annual reports and quarterly reports) (sections 159 to 160, Financial Investment Services and Capital Markets Act) (FISCMA).

The business report must include information on the company, including the:

  • Overview of the business.

  • Business performance outcomes.

  • Financial matters.

  • Auditor's opinion.

The disclosure obligation is applicable to the issuers who have listed unsecured corporate bonds or equity-related instruments (not applicable to companies that have listed secured corporate bonds and guaranteed corporate bonds) (section 167, Enforcement Decree of the FISCMA).

Submission of a report on material facts (FISCMA)

A company with listed debt securities must submit a report to the Financial Services Commission when (section 161, FISCMA):

  • A bill or check issued by the company is returned or its checking account transaction in a bank is suspended.

  • Its business activities are completely or partially suspended.

  • An application is filed for the commencement of rehabilitation proceedings.

  • There is a cause or event that triggers the company's dissolution.

  • The company's board of directors adopt a resolution to increase or reduce its capital or debt.

  • The company undergoes merger, division, or merger after division.

  • A transfer of an essential business or asset occurs.

  • The company acquires or disposes of its treasury stocks.

  • The company undergoes other events that may cause significant impact to the management or asset of the company.

The report must contain the details of any of the above events and must be submitted immediately following the occurrence of any of these events.

Report of significant business matters (KOSPI Market Disclosure Regulation)

A company with listed contingent convertible bonds, unsecured corporate bonds or equity-related instruments (excluding special purpose companies for asset securitisation) must submit a report to the KRX when any of the following events either related to significant business matters or changes to the rights from the debt securities occur (section 53 to 57, Korean Composite Stock Price Index (KOSPI) Market Disclosure Regulation):

  • A bill or check issued by the company is returned or its checking account transaction in a bank is suspended.

  • Its business activities are completely or partially suspended.

  • An application is filed for the commencement of rehabilitation proceedings.

  • There is a cause or event that triggers the company's dissolution.

  • The company undergoes merger, spin-off or merger after spin-off.

  • A major claim is filed in relation to the listed debt securities.

  • The company receives an audit opinion of "inappropriate" or "limited" due to restriction on the audit scope or fails to receive an opinion due to the auditor's refusal.

  • Capital impairment of the company.

  • The company receives an audit opinion of "inappropriate" or the auditor refuses to provide an opinion on its semi-annual report.

  • The company is prosecuted for the violation of accounting standards.

  • There is a triggering event for equity conversion of the company's contingent convertible bonds.

  • Notice for acceleration of payments on the debt securities is provided.

  • Notice for convocation or resolution of association of debt securities holders is provided.

  • The company fails to pay principal or interest of a debt.

The report must be submitted by either the same day or the day immediately following the day on which any of the above events occurred.

A "contingent convertible bond" means a bond convertible to equity or the payment of whose principal or interests is exempt if a pre-specified event determined at the time of the issuance based on an objective and reasonable standard is triggered (section 165-11, FISCMA).

Other matters to be reported

A company with listed debt securities shall report to the KRX if any of the following occurs (section 93(1), KOSPI Market Listing Regulation; section 79, Enforcement Rules of KOSPI Market Listing Regulation):

  • Early redemption has been decided for debt securities already issued.

  • The coupon rate of a floating rate note is changed.

  • If warrant certificates, corporate bonds with warrant, convertible corporate bonds or exchangeable bonds fall under any of the below:

    • if the right of subscription, conversion or exchange based on such securities is exercised; or

    • if the subscription price, the conversion price or the exchange price of such securities changes.

  • If contingent capital securities fall under any of the below:

    • if the listing amount changes due to the occurrence of the ground for stock conversion or the ground for debt readjustment; or

    • if the stock conversion price of such convertible contingent capital securities changes.

  • If other material issues related to the rights, interests or treatment of the debt securities occur.

The management of listed debt securities and the reporting, disclosure and management of a listed company are regulated by the:

  • FISCMA.

  • KOSPI Market Listing Regulation (and its enforcement rules).

  • KOSPI Market Disclosure Regulation (and its enforcement rules).

 
10. Do the continuing obligations apply to foreign companies with listed debt securities?

Foreign companies are also subject to the obligations to submit business reports and reports on material facts (see Question 9).

However, the submission deadline is slightly extended for foreign companies, and if the foreign company has submitted any equivalent documents to its home country, it can submit a translation of these documents without following the format prescribed under the Korean law (section 159, FISCMA; section 176, Enforcement Decree of the FISCMA).

A company with listed foreign debt securities or its listing agent must promptly report to the KRX if any of the following occurs (section 98, KOSPI Market Listing Regulation; section 82, Enforcement Rules of KOSPI Market Listing Regulation):

  • Issuance of foreign debt securities in Korea.

  • Redemption or retirement of listed foreign debt securities.

  • Amendments to the

    • trust agreement;

    • issuance agreement; or

    • agreement for underwriting regarding the foreign debt securities.

  • Change of listing agent or amendment of the agency agreement executed with the listing agent.

  • An overseas stock market has imposed certain measures necessary for the management of the listed debt securities (for example, delisting from a foreign exchange or suspension on trading).

  • If other material issues related to the rights, interests or treatment of the foreign debt securities occur.

 
11. What are the penalties for breaching the continuing obligations?

Administrative measures

When a business report or a report on significant business matters has not been submitted, or there exists a false description or representation in such a report, the Financial Services Commission can order a company obligated to submit a business report to disclose relevant facts to the public and make a correction, and it can suspend or prohibit issuance of securities or any other transaction (section 164, FISCMA).

Criminal liabilities

If a representative, officer or an employee of a company fails to submit a periodic report or a report with material facts, he may be subject to imprisonment of up to one year or a fine of up to KRW30 million, or if he misrepresents or omits a material fact he may be subject to imprisonment of up to five years or a fine of up to KRW200 million (sections 444 and 446, FISCMA).

Penalty surcharge

The relevant company can also be subject to a penalty surcharge for these violations (section 429(4), FISCMA).

Civil liabilities

A person who submitted the business report, the directors of the company, and a person who falls under any of the following provisions and instructed or executed the preparation of the registration statement will be liable for damages sustained by a person who acquired, or disposed of, securities issued by a company due to a false description or representation of a material fact (section 162, FISCMA):

  • A person who instructed a director to conduct business by using his influence over the company.

  • A person who conducted business in person under the job title of director.

  • A person, other than a director, who conducted the business of the company by using a title which may give the impression he is authorised to conduct the business of the company (such as honorary chairman, chairman, president, vice-president, executive director, managing director, director, or others).

Other restrictions

If a company fails to submit its periodical reports, the trading of the listed stock of that company can be suspended until the periodical reports are submitted (section 153(1)(16), KOSPI Market Listing Regulation). Furthermore, if a company fails to submit its periodical reports within ten days of the statutory deadline, the listed debt security may be delisted (section 92, KOSPI Market Listing Regulation).

In addition, a listed company may be designated as an unfaithful disclosure company if it fails to comply with the disclosure obligations with respect to significant business matters, reverses the disclosure, or makes a change to the disclosure. The KRX can then suspend the trading of that unfaithful disclosure company, make public the designation that it is an unfaithful disclosure company, or impose a fine on the unfaithful disclosure company for non-compliance with disclosure obligations (section 36 et seq, KOSPI Market Disclosure Regulation).

 

Advisers and documents: debt securities issue

12. Outline the role of advisers used and main documents produced when issuing and listing debt securities.

An investment bank as an underwriter provides commercial advice to an issuer on the practicability, manageability, time of issuance, terms and conditions of the issuance of debt securities and overall co-ordinates operations related to the issuance of debt securities.

Law firms provide legal advice to issuers on the procedure of issuing debt securities and assist in preparing documents to meet the report and disclosure obligations for the issuing and listing debt securities. Accounting firms providing accounting services related to issuing debt securities.

The first part of a registration statement provides matters on public offering and sales, and the second part of a registration statement provides matters on the issuer (section 125(1), Enforcement Decree of the FISCMA; section 2-6, Regulations on the Issuance and Disclosure of Securities). The registration statement must be submitted with the articles of incorporation of the issuer, the corporate register of the issuer and a copy of the minutes of the general meeting of shareholders or board of directors at which a resolution for the issuance of the debt securities were based, and according to the type of debt securities issued (secured bonds, guaranteed bonds or unsecured bonds) an auditor's report and a copy of a trust deed may be further requested (section 125(2), Enforcement Decree of the FISCMA; sections 2-4, 2-6 and 2-11, Regulations on the Issuance and Disclosure of Securities). Items to be listed in the registration statement or attachments thereto may be different if the issuer is a foreign company (section 2-11, Regulations on the Issuance and Disclosure of Securities).

When listing debt securities, the listing application and certificate form of the debt securities (if physically issued) must be submitted. If the debt securities are indirectly issued, the trust deed, acquisition agreement or sales agreement, copy of the public offering agency agreement, financial statement of the issuer, audit report and documents evidencing payment for the debt securities should be submitted (Enforcement Rules of KOSPI Market Listing Regulation, Table 3).

 

Debt prospectus/main offering document

13. When is a prospectus (or other main offering document) required? What are the main publication/delivery requirements?

An investment prospectus should be submitted to the Financial Services Commission on the day the relevant registration statement becomes effective (section 123(1), FISCMA). In principle, a registration statement becomes effective after a certain period has passed since the acceptance of the registration statement (five days for secured bonds, secured bonds and asset-backed securities and seven days for unsecured bonds) (section 120, FISCMA).

If a preliminary prospectus or a short-form prospectus is to be used for the solicitation of an offer prior to the effective date of the registration statement, such prospectus must be attached and submitted to the Financial Services Commission on the day the registration statement is submitted (section 125(2), Enforcement Decree of the FISCMA).

The issuing company must make the investment prospectus available to the general public at the head office, the Financial Services Commission and the place in which affairs relating to the subscription is handled (section 123(1), FISCMA; section 13(1), Enforcement Rule of the FISCMA).

When soliciting an offer to invest in securities an investment prospectus must be used, and the securities cannot be acquired or sold if the investment prospectus is not delivered to an investor (section 124 (1), FISCMA).

 
14. Are there any exemptions from the requirements for publication/delivery of a prospectus (or other main offering document)?

Delivery of a prospectus is exempt for the issuance or sales of debt securities to the following investors that have a lesser need to be protected (section 124(1), FISCMA; section 132, Enforcement Decree of the FISCMA).

  • Professional investors.

  • Accounting firms, credit rating agencies, persons who provide accounting, consulting and similar services to the issuer with an officially recognised qualification certificate (for example, certified public accountant, appraiser, attorney-at-law, patent attorney, tax accountant), and related parties to the issuer.

  • Persons who expressed their intent to refuse to receive an investment prospectus in writing, by phone, cable, facsimile, emails or similar telecommunication methods.

 
15. What are the main content/disclosure requirements for a prospectus (or other main offering document)? What main categories of information are included?

An investment prospectus must include identical information as the registration statement and must not omit any material facts (section 123(2), FISCMA). The first part of a registration statement must provide matters on public offering and sales, and the second part must provide matters on the issuer (section 125(1), Enforcement Decree of the FISCMA; section 2-6, Regulations on the Issuance and Disclosure of Securities).

The first part of the registration statement must include:

  • General matters of the public offering or sales.

  • Rights to the debt securities.

  • Investment risks to acquiring the debt securities.

  • Information on the underlying assets (in the case of derivative linked securities).

  • Opinion of the underwriter (in case an underwriter exists).

  • Purpose of raising funds.

  • Matters regarding market-making and stabilisation.

  • Other matters necessary to protect investors.

The second part of the registration statement must include:

  • Overview of the company.

  • Scope of the business.

  • Financial matters.

  • An auditor's report.

  • Matters on the:

    • organisation of the company (for example, board of directors) and its affiliated companies;

    • shareholders;

    • officers;

    • employees; and

    • promoters.

  • Information on the transactions with related parties.

  • Supplementary schedules.

  • Changes and progress to matters provided in the report on material facts and non-periodic disclosure matters.

  • Matters on contingent liabilities.

  • Details on the usage of funds.

  • Other matters necessary to protect investors.

 
16. Who is responsible for the prospectus (or other main offering document) and/or who is liable for its contents?

Civil liabilities

The following persons are liable for damages inflicted upon any person as a result of acquiring securities by including a false description or representation of any material fact in a registration statement and/or an investment prospectus (including preliminary investment prospectus and short-form investment prospectus) or omitting a material fact (section 125(1), FISCMA):

  • The registrant of the relevant registration statement and the directors of the issuer at the time of filing the registration statement.

  • A person who instructed or executed the preparation of the registration statement.

  • A certified public accountant, a certified appraiser, a specialist in credit rating, attorney-at-law, patent attorney or tax accountant who certified with his/her signature that the descriptions of the registration statement or the supplements thereto are true and correct.

  • A person who consented to include his/her statement of evaluation, analysis, or verification in the descriptions of the registration statement or the supplements thereto and confirmed such statement therein.

  • The underwriter or broker of the debt securities.

  • A person who prepared or delivered the investment prospectus.

  • The seller of the securities at the time the registration statement for sale was filed if the case involved the sale of securities (as opposed to the issuance of new securities).

However, the above persons are not liable if he proves that he was unable to discover the inclusion or omission of information even if he exercised reasonable care, or if the person who acquired the securities knew of the inclusion or omission of information at the time when he made an offer to acquire the securities (section 125(1), FISCMA).

Criminal liabilities

A person who falls under any of the following shall be sentenced to imprisonment up to five years or to a fine of up to KRW200 million (section 444(13)(c), FISCMA):

  • A person who included a false description or representation of any material fact in a registration statement or omitted a material fact.

  • A person who signed the registration statement as the representative director or a director of the issuer while knowing the fact that there was a false statement or representation of a material fact or an omission of a material fact.

  • A certified public accountant, appraiser or an expert in credit rating who signed a document to certify that the document is true and correct while knowing the fact that there was a false statement or representation of a material fact or an omission of a material fact.

Also, if a person solicits to offer, sell or let any other person acquire securities without submitting an investment prospectus to the Financial Services Commission or delivering an investment prospectus he shall be punished by imprisonment of up to one year or by a fine of up to KRW30 million (sections 446(21) to (23), FISCMA).

Administrative measures

When a prospectus has not been submitted or there exists a false description or representation in such a prospectus, the Financial Services Commission may disclose relevant facts to the public, order the registrant of a registration statement, an issuer, seller, underwriter, or intermediary of securities to make a correction, or suspend or prohibit issuance of securities or any other transaction (section 132, FISCMA; section 138, Enforcement Decree of the FISCMA).

Penalty surcharge

When a prospectus has not been submitted or there exists a false description or representation in such a prospectus, the Financial Services Commission may impose a penalty surcharge within the limit of 3/100 of the amount of the public offering or sale written on the relevant registration statement (or two billion won if 3/100 of such amount of public offering or sale exceeds two billion won) on a person who falls under any of the following (section 429(1), FISCMA):

  • The registrant of the relevant registration statement and directors of the issuer at the time of filing the registration (referring to persons in a similar position if there is no director, or promoters if the registration statement was filed before the company was incorporated).

  • A person who instructed a director to conduct business by using his influence over the company who instructed or executed the preparation of the registration statement.

  • A person who conducted business in person under the job title of director who instructed or executed the preparation of the registration statement.

  • A person, other than a director, who conducted the business of the company by using a title which may give the impression he is authorised to conduct the business of the company (such as honorary chairman, chairman, president, vice-president, executive director, managing director, director, or others) who instructed or executed the preparation of the registration statement.

  • A certified public accountant, a certified appraiser, a specialist in credit rating, an attorney, a patent attorney, a tax accountant, or any similar person with an officially recognised qualification certificate, who certified with his signature that the descriptions of the registration statement, or the supplements to it, are true and correct (including organisations to which any of them belong).

  • A person who consented to include his statement of evaluation, analysis, or verification in the descriptions of the registration statement, or the supplements to it, and confirmed such statement.

  • An underwriter or intermediary of the securities.

  • A person who prepared or delivered the investment prospectus.

  • The seller at the time the registration statement for sale was filed, if the case involved a sale of securities.

 

Timetable: debt securities issue

17. What is a typical timetable for issuing and listing debt securities?

For unsecured corporate bonds, which are publicly offered, entirely acquired by an underwriter and registered with the Korea Securities Depository, the following timetable applies:

  • 40 days pre-deadline. Selecting an underwriter and negotiating issuing conditions.

  • 30 days pre-deadline. Resolution of the board of directors of issuer.

  • 29 days pre-deadline. Execution of an agreement with the underwriter.

  • 25 days pre-deadline. Corporate due diligence (contents of the due diligence must be disclosed in the registration statement).

  • One week pre-deadline. Credit rating conducted by a credit rating agency.

  • Five days pre-deadline. Forecasting demand (the process of evaluating the investment demand of debt securities based on the suggested interest rate and suggested needs of institutional investors after an underwriter proposes a public offering interest rate band to institutional investors to determine the terms and conditions of the issuance of debt securities).

  • Three days pre-deadline. Agency agreement for bond subscription and agency agreement for payment of principal and interest.

  • One day pre-deadline. Agreement for the total acquisition (sales) amount.

  • Deadline. Submission of the registration statement (to the Financial Services Commission) and notice on guidance for offering debt securities (to the general public).

  • Two days post-deadline. Applying for listing at the KRX and requesting registration with the Korea Securities Depository.

  • Eight days post-deadline. Effective date of the registration statement and drafting and disclosure of the investment prospectus.

  • Nine days post-deadline. Subscription of securities and payment and listing of securities at the KRX.

  • 12 days post-deadline. Submission of post-issuance report (to the Financial Services Commission).

 

Tax: debt securities issue

18. What are the main tax issues when issuing and listing debt securities?

No taxes are imposed specifically for issuing and listing corporate bonds. However, stamp tax must be paid when issuing corporate bond certificates, which is KRW400 per certificate (section 3(1)(9), Stamp Tax Act). If the debt security is not physically issued (that is, is only a registered bond) stamp tax will not be imposed (section 3(1)(3), Stamp Tax Act; section 6-2(3), Enforcement Decree of the Stamp Tax Act).

 

Clearing and settlement of debt securities

19. How are debt securities cleared and settled and what currency are debt securities typically issued in? Are there special considerations for holding, clearing and settling debt securities issued in foreign currencies?

Trading of listed securities at the KRX ordinary debt securities market is done through individual auctions, where after the act of trading, the seller and purchaser each provides and receives debt securities and cash with the KRX (section 75-2, KOSPI) Market Business Regulation).

Individual auctions can be categorised into:

  • Single-price auctions. Bidding prices for sales and purchases are collected for a certain period of time from market participants, and based on the principle of priority regarding price and time, a single price is determined and applied equally to all participants.

  • Multi-price auctions. Sales are conducted when the lowest sales price and the highest purchase price, received through the bidding of sale and purchase prices of market participants, are equal; the transaction price continuously changes based on the principle of priority regarding price and time.

For over-the-counter trading, when an agreement is reached between the seller and the purchaser, the terms and conditions of the trading is mutually confirmed via phone, messenger or facsimile, and trading is conducted. Payments are generally made the day after the transaction although payments may also be made within 30 business days from the execution of the sales and purchase agreement between the parties. In principle, the seller and purchaser are to simultaneously each transfer debt securities certificates and the purchase price.

Foreign currency-denominated bonds are traded by "points" (one point is equal to one 1 unit of foreign currency (for example, US$1, JPY100, EUR1, CNY1)) designated for standardisation purposes for each currency (section 2(4)(1), KOSPI Market Business Regulation). When KRX confirms the amount of securities (bonds) and the consideration to be cleared through the exchange regarding foreign currency-denominated bonds, the payment amount is to be fixed based on the amount converted to Korean Won according to the standard sales rate as of the payment date specified and announced under the Foreign Exchange Transaction Regulations (section 100(3), Enforcement Rules of KOSPI Market Business Regulation).

There are no special considerations for holding, clearing and settling debt securities issued in foreign currencies.

 

Reform

20. Are there any proposals for reform of debt capital markets/exchanges? Are these proposals likely to come into force and, if so, when?

AMBIF

ASEAN+3 (Korea, China, and Japan) have been in discussion of establishing the ASEAN+3 Multi-currency Bond Issuance Framework (AMBIF), a joint debt securities issuance program.

AMBIF is modelled on exchange markets for professional investors such as the London Stock Exchange and the Tokyo Stock Exchange, and is expected to have a market structure of a corporate bond market for private placement with lax disclosure requirements for issuing, listing and trading debt securities to professional investors within the Asian market.

Although it is difficult to anticipate the timing of the actual establishment of the market, the relevant nations are making an effort to materialise these concepts through discussions.

Currency for transactions

At present, the price for the listed foreign currency-denominated debt securities must be always converted to and paid in Korean won (section 100(3), Enforcement Rules of KOSPI Market Business Regulation). However, the amendment to the Enforcement Rules of KOSPI Market Business Regulation on 24 December 2015 allows payment in the foreign currency. The purpose of the amendment is to provide convenience to investors and promote circulation of exchange-traded, foreign currency-denominated debt securities. However, the timeline for the actual enforcement of the amendment has not yet been determined, for reasons such as the time needed to develop relevant computer programs.

 

Online resources

Financial Supervisory Service

W www.fss.or.kr

Korea Exchange

W www.krx.co.kr

Korea Financial Investment Association

W www.kofia.or.kr

Korea Securities Depository

W www.ksd.or.kr


Contributor profiles

Wonhyung Kim, Partner

Yoon & Yang LLC

T +82-2-6003-7531
F +82-2-6003-7016
E whkim@yoonyang.com
W www.yoonyang.com

Professional qualifications. Korea 2002; New York, USA, 2010

Areas of practice. Capital markets; general corporate law issues; liabilities of directors and statutory auditors; mergers and acquisitions; general corporate finance; securitisation/structured financing; project financing/real estate financing; derivatives transactions; initial public offering/international capital markets; acquisition financing; collective investment/private equity; mergers and acquisitions among financial institutions; financial regulation/corporate disclosure; international contracts; foreign investment.

Languages. Korean, English, Japanese

Hyerin Roh, Associate Attorney

Yoon & Yang LLC

T +82-2-6003-8119
F +82-2-6003-7835
E hrroh@yoonyang.com
W www.yoonyang.com

Professional qualifications. Korea, 2013

Areas of practice. Capital markets; general corporate law issues

Languages. Korean, English


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